Cash-out refi activity helps loosen mortgage credit

Mortgage credit continues to loosen as lower interest rates led lenders to add cash-out refinance products to their menus, the Mortgage Bankers Association found.

Its Mortgage Credit Availability Index reached 95, a 1% increase in June over May's 94.1 but down from 96.6 one year ago.

This was the sixth consecutive month the MCAI increased, but credit remains historically tight. The index has not been above its benchmark level of 100 since March 2023.

"The recent growth in credit availability is encouraging, but the index is still hovering near 2012 lows," said Joel Kan, deputy chief economist, in a press release. "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."

June rate lock data previously released by Optimal Blue found that refinancings of both types increased during the month versus May, with rate & term up 39% and cash-out activity 11% higher.

Rates for the 30-year fixed loan fell 6.86% on June 27 from 7.03% on May 30, according to the Freddie Mac Primary Mortgage Market Survey. It rose to 6.95% for July 3.

The conventional MCAI increased by 2% versus May, with the jumbo component increasing by 3.1%. This was offset by a 0.3% decline in conventional program offerings.

Meanwhile, the government index decreased by 0.1%.

Even though refinance activity this past week was subdued, according to the MBA's Weekly Application Survey, that could change going forward.

The 10-year Treasury yield, one of the benchmarks used to price mortgages, fell to 4.17% as of 10 a.m. on Thursday morning based on both positive inflation news as well as investor reactions to Congressional testimony from Federal Reserve Chairman Jerome Powell.

This is the lowest point for the 10-year since March 13, when it was also at 4.17%.

The MBA calculates the index using loan program data provided by ICE Mortgage Technology.