Increased availability of mortgage credit to help offset rising rates

The availability of mortgage credit has declined in recent months, which is good news for homebuyers with new credit histories or lower credit scores.

Banks and other lending institutions tightened lending standards when the pandemic hit, but the availability of mortgage credit has slackened in recent months.

The Mortgage Bankers Association’s Mortgage Availability Index rose 0.8% in December, indicating that lending standards are loosening, not tightening. Part of the recent increase in credit availability has come from expanded offerings of low-credit loan programs, which is good news for qualified potential borrowers who are most affected by rising rates and affordability issues.

“I think this is going to help a lot of households that are new to credit history or have had some sort of credit event that could have lowered their scores in the last two years,” said Joel Kan. , vice-partner. chairman of economic and industry forecasting at the Mortgage Bankers Association in DC

While the overall supply of mortgage credit in December only increased by 3% compared to the previous year, there was a 34% increase in the availability of jumbo credit. These are nonconforming loans that are too big for Fannie Mae and Freddie Mac. These high-end borrowers often have lower risk profiles.

“Generally, these are borrowers with better credit, whether it’s higher income or better credit. It really is a combination of everything. And many of them are also listed on bank balance sheets, so they can determine their own credit needs,” Kan said.

Mortgage credit availability is still below the average seen in the 10 years the Mortgage Bankers Association has calculated its Mortgage Credit Availability Index, but is now at the highest level since May 2021.

With mortgage rates rising and house prices continuing to rise, Kan said he believed further easing of mortgage lending standards would be important for the health of the housing market in 2022.

“I think the availability of credit in the coming year will be an extremely important part of the housing market. With any gradual rate increases, this will continue to put pressure on housing affordability,” he said. he declares.

The association calculates its Mortgage Availability Index based on borrower eligibility, such as credit scores, loan types and loan-to-value ratios, as well as underwriting criteria for more than 95 lenders and investors.

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