Increased credit supply fueled by new cash-out refinance options
Mortgage credit availability increased in June for the sixth month in a row, driven by lenders expanding their offerings of cash-out refinance loan programs, according to the Mortgage Bankers Association (MBA).
The Mortgage Credit Availability Index (MCAI), which analyzes data from ICE Mortgage Technology, rose by one percentage point to a reading of 95 in June. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit, MBA explained.
“The recent growth in credit availability is encouraging, but the index is still hovering near 2012 lows,” Joel Kan, vice president and deputy chief economist at MBA, said in the report.
The Conventional MCAI increased by 2%, while the Government MCAI decreased by 0.1%. Within the Conventional MCAI, the Jumbo MCAI rose by 3.1%, reaching its highest level since August 2022. Meanwhile, the Conforming MCAI fell by 0.3%.
“The jumbo index increased to its highest level since August 2022, but the conforming and government indices continue to indicate tight credit conditions, driven mainly by reduced industry capacity,” Kan added.
The Government MCAI examines FHA, VA, and USDA loan programs, while the Conventional MCAI looks at non-government loan programs. The Jumbo and Conforming MCAIs are subsets of the Conventional MCAI, with the Jumbo MCAI focusing on conventional programs outside conforming loan limits, and the Conforming MCAI examining programs within those limits.
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In a separate report, MBA data showed changes in the share of total applications for different loan programs. The FHA’s share decreased to 12.5% from 13.1% the previous week, the VA’s share rose to 13.7% from 12.9%, and the USDA’s share increased slightly to 0.4%.
Overall mortgage loan application volume dipped 0.2% week-over-week on a seasonally adjusted basis for the week ending July 5, according to MBA’s weekly applications survey.
“Purchase activity picked up slightly, driven primarily by increases in FHA and VA applications,” said Kan. “Refinance applications decreased for the fourth consecutive week, in line with higher rates. Although home equity gains have been significant in recent years, most borrowers do not have much of an incentive to refinance at current rates.”
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