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MBA: Mortgage credit still getting tighter

Low-down mortgages not boosting closings

Mortgage credit tightening held back the spring home buying season, despite industry efforts to relieve it. Whereas industry giants such as Fannie Mae and Freddie Mac sought to implement programs that would loosen the credit availability, it seems that the rest of the market is somewhat hesitant to jump in.

Credit availability decreased in May for the third consecutive month, according to the Mortgage Credit Availability Index, a report from the Mortgage Bankers Association which analyzes data from Ellie Mae’s AllRegs Market Clarity business information tool.

Whereas an increase in the MCAI would mean that lending standards are getting looser, a decline indicates standards are tightening. The MCAI decreased 0.8% to 121.4 in May.

Of the four component indices, the Jumbo MCAI tightened the most with its decrease of 1.3%, followed by the Government MCAI at 1%, the Conventional at 0.8% and the Conforming at 0.3%. Unlike last month, when the Conventional MCAI increased to contrast the tightening conditions in the other three, this month, all four indices decreased.

And it shows. Falling in line with the rest of this spring home-buying season, mortgage applications dropped 4.1%, according to the latest data from the MBA’s Weekly Mortgage Applications Survey for the week ending May 27.

“Credit availability decreased for the third consecutive month in May,” said Lynn Fisher, MBA vice president of research and economics. “Gains in credit availability caused by the continued roll-out of Fannie Mae and Freddie Mac low down payment programs were offset by modest tightening among government loan programs that serve borrowers in high cost areas.”

In fact, after the slow start to the spring home buying season, people pointed to tight credit as one reason to blame, with Danny Gardner, Freddie Mac vice president of affordable lending and access to credit, weighing in on the discussion at the MBA Secondary conference in New York City.

Recently, several companies have started their own 3% down programs in an effort to loosen mortgage credit including:

Freddie Mac’s Home Possible Advantage program

Fannie Mae’s HomeReady mortgage

Bank of America’s Affordable Loan Solution mortgage

Wells Fargo’s yourFirst Mortgage

JPMorgan Chase’s Standard Agency 97% program

The problem, however, is that many institutions still include their own overlays, therefore tightening the credit box, Gardner said.

This chart shows the Credit Availability Index by month:

Click to Enlarge

Credit index May 2015

(Source: MBA) 

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