Mortgage credit loosens in May, as lenders add ARMs, cash-out refis

Lenders increased their mortgage credit availability for the third consecutive month in May, helped by conventional lenders adding adjustable rate along with cash-out refinance products, the Mortgage Bankers Association said.

May’s Mortgage Credit Availability Index rose to 129.9 from 128.1 in April and 129.3 in May 2020, the second consecutive month where mortgage lenders pulled back on their product offering because of the pandemic.

Even with the increase this month, credit availability remained at levels recorded in 2014. For comparative purposes, in February 2020, the last month before lenders started tightening credit because of the pandemic, the MCAI stood at 181.3.

The conventional segment of the index increased 3.5% compared with April. “This is consistent with the uptick in mortgage rates and a slowing refinance market, as well as MBA’s Weekly Applications Survey data showing increased interest in ARMs,” Joel Kan, associate vice President of economic and industry forecasting, said in a press release.

The jumbo portion of the conventional index increased 5% on a month-to-month basis, but was still half of where it was in February 2020, he pointed out.

“A rapidly improving economy and job market has freed up jumbo credit, as banks have deposits to utilize,” Kan said. “However, there is still plenty of restraint, as many sectors have not fully returned to pre-pandemic capacity, and there are around 2 million borrowers still in forbearance.”

Meanwhile the conforming portion of the conventional index rose 1.6% in May compared with April. For the first time since January, there was a month-to-month decline in the government MCAI, dropping by 0.3% for May.

Across the board — for conforming, nonconforming and jumbo products — respondents to Fannie Mae’s second quarter Mortgage Lenders Sentiment Survey were neutral on whether credit did tighten or loosen in the prior three months or will do so in the next three months.

But there was a slight bias towards credit for nonconforming and government mortgages loosening both in the past three and next three months in the results. However for conforming mortgages, the bias leaned towards tightening.

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