Government-backed credit tightens to decade-low

Government-guaranteed mortgage program offerings were at their lowest in over a decade even as Federal Housing Administration-insured loans took market share from other product types, two different November reports found.

The Mortgage Bankers Association's Mortgage Credit Availability Index declined 3.3% from October to 95.9. October's 99.2 was the closest the MCAI was to the 100 benchmark level since April 2023, with the last time it was above that point was the previous month.

For November 2023, the MCAI was 96.5.

The government MCAI was down by 3.9%, while the conventional index fell 2.7%, to its lowest point since December 2012, said Joel Kan, the MBA's deputy chief economist. The conventional index is further divided into conforming, down 6.6%, and jumbo, which was 0.9% lower.

"Credit availability tightened considerably in November, pushing the index to the lowest level in five months," Kan commented in a press release. "Part of the decline was attributable to investors pulling back on high loan-to-value and low credit score programs for both fixed and adjustable rate mortgage loans, as well as further exits from the broker channel in an originations market that is still challenging for many lenders."

The decline in overall product offerings was likely driven by a significant reduction in rate lock activity during November.

Rate locks were down by 25% during the month compared with October, with purchase volume off by 21%, the Optimal Blue Market Advantage report found. Cash-out refinance activity was 20% lower while rate-and-term was cut by half.

But when compared with November 2023, total rate lock volume rose 12%, with purchase up 5%, and cash-out and rate-and-term refinances increasing 35% and 95% respectively. This decline in activity pushed the Market Volume Index back below the 100 mark, to 78. That is compared with 104 in October, although it is above the 70 reported for November 2023.

While a "refi boomlet" took place in September and October, rate-and-term activity was hampered by mortgage rate movements following the September Federal Open Market Committee meeting.

By product type, FHA was the only one to gain market share on a month-to-month basis, rising 73 basis points from October to 20.4% of all loans originated during the month.

Conforming slipped to 52.7%, a loss of 10 basis points and nonconforming was at 14.9%, down 21 basis points. Of the other government product types, Veterans Affairs' share of 11.4% was 35 basis points lower, while the U.S. Department of Agriculture loan locks were 6 basis points lower at 0.6%.

"The rising percentage of FHA loans indicates affordability continues to be a concern among homebuyers as we move into year-end," said Brennan O'Connell, director of data solutions at Optimal Blue, in a press release. "In spite of the recent dip in purchase and refinance activity, we see the year-over-year improvements in purchase volume, cash-out and rate-and-term refinances as a bright spot."

When compared with November 2023, conforming rate locks were down by 347 basis points, and FHA were off by 218 basis points. On the other hand, nonconforming mortgages had a share increase of 476 basis points, while VA were 89 basis points higher and USDA was unchanged.

The refi pull-through rate in November was 65.9%, down 189 basis points from October, but up 765 basis points from the prior year.

Meanwhile the purchase pull-through rate was higher for both comparative periods, to 84.3%, up by 119 basis points from one month ago, and by 628 basis points over one year ago.