According to prominent mortgage information providers, the Mortgage Bankers Association (MBA) and AllRegs, the easement of mortgage credit availability has continued its upward trend into May. The Mortgage Credit Availability Index (MCAI), as it has been so aptly named, recently announced that mortgage credit is more readily available this month than the last.
The index has taken into consideration several mortgage underwriting criteria from more than 85 lenders or investors. Those criteria include: credit score, loan type, and loan-to-value ratio. The companies promote the recent MCAI as the only standardized quantitative index that is solely dedicated to mortgage credit.
According to Mike Fratantoni, MBA’s vice president of research and economics, statistics provided by the index will serve to facilitate mortgage credit availability trends. It will also inform us how those trends may be impacted by subsequent policy changes.
The survey is benchmarked to an index value of 100 in March 2012, indicating that anything over 100 acknowledges the easement of mortgage credit availability. Subsequently, anything below 100 represents less availability because of stricter lending practices. The MCAI is currently resting at 108.9, 0.3 points higher than it was in April. Therefore, credit availability has eased in recent months, allowing more potential homebuyers to hit the market.
This is a far cry from what the index would have indicated in 2007. The Mortgage Bankers Association (MBA) and AllRegs acknowledged that inept loan strategies were reflected by a score of 800 on the MCAI right before the bubble.
However, a return to normalcy has seen the index begin to balance itself. Availability is trending close to levels seen in 2011 and indicates higher availability witnessed in 2012. While the rise in available credit can be attributed to several factors, it is likely the byproduct of investors lowering their requirements of minimum credit scores. Furthermore, the introduction of the Home Affordable Refinance Program (HARP) allows for loan-to-value ratios of more than 95 percent.
“HARP lending continues to be an important component of the market. The availability of these very high-LTV loans is one of the factors leading to the MCAI showing an increase over the past year,” Fratantoni said.
As mortgage rates continue their own upwards trend, lenders may begin to loosen their underwriting standards, reducing the need for many homeowners to refinance. If that is the case, refinanced mortgages will only make up one-third of the market, as opposed to the three-quarters they represented during the downturn.