Mortgage credit tightened in September, MBA says

“Lenders are being more cautious,” says MBA’s Kan

Mortgage credit in September was the tightest since February 2014 as a weak economy prompted lenders to raise standards, the Mortgage Bankers Association said in a report on Thursday.

The group’s Mortgage Credit Availability Index fell 1.9% to 118.6 last month, indicating stricter requirements to get loans. The index plunged from record highs seen in late 2019 after the COVID-19 pandemic caused the sharpest economic contraction since the Great Depression.

“The housing market overall is on strong footing, but the data show that lenders are being cautious, given the spike in mortgage delinquency rates in the second quarter, as well as the ongoing economic uncertainty,” said Joel Kan, an MBA associate vice president.

Some of the reduction in credit availability was due to lenders discontinuing adjustable-rate mortgages benchmarked to the London Interbank Offer Rate, or LIBOR, Kan said. LIBOR is being phased out almost a decade after regulators discovered traders were manipulating the rate set by Britain’s biggest banks.

In addition, lenders have been reducing the availability of loans to borrowers with small down payments and low credit scores, Kan said.

“Across all loan types, there continues to be fewer low credit score and high-LTV loan programs,” Kan said, referring to loan-to-value, or the size of the mortgage compared to the value of the property.

The U.S. economy contracted 31% in the second quarter, compared to a year earlier, as the nation struggled to contain the worst public health crisis in more than a century. It was the sharpest contraction of GDP since the Great Depression, according to the Bureau of Economic Analysis.

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