Mortgage credit offerings decline as interest rates plateau

Mortgage lenders reacted to the economic uncertainty in the nation and reduced their product offerings, especially those outside of the conforming box, for September.

In the first two weeks of the month, the 30-year fixed rate mortgage dropped 26 basis points, according to Freddie Mac. But in the aftermath of the Federal Open Market Committee's 50 basis point reduction in the Fed Funds rate, mortgage rates have flattened and turned upwards again so far in October.

The FOMC action in itself was a sign policymakers believe the U.S. economy is slowing, with the markets now expecting another 25 basis point reduction at its next meeting. However, the latest jobs report was better than forecast, and that has affected mortgage rates.

As a result, lenders are remaining cautious about extending credit in the current environment, said Joel Kan, the Mortgage Bankers Association's deputy chief economist.

Its Mortgage Credit Availability Index decreased 0.5% to 98.5, the first time it has tightened since last December.

For August, the MCAI was 99, while in September 2023, it was at 97.2. The index has not been above the 100 baseline mark since March 2023, meaning that credit is tighter now than when the index was first calculated for March 2012.

"There was a decline in loan programs for cash-out refinances, jumbo and non-QM loans, including loans that require less than full documentation," Kan said in a press release. "Most component indexes decreased over the month, but the government index increased, driven by more offerings of VA streamline refinances."

Among the components of the MCAI, the government product offerings increased 0.8% from August.

The conventional index was down by 1.7%, with the jumbo portion 2.6% lower but the conforming segment was unchanged. The MBA's Weekly Application Survey for Oct. 4, which would cover the end of September, noted rising rates had impacted conventional refinance activity.

The Veterans Affairs product, also known as Interest Rate Reduction Refinance Loans, has been a cause of concern for both Ginnie Mae and mortgage regulators in the past. They are worried that lenders are taking advantage of the ease in doing these loans and are churning (selling borrowers on a new loan after a short period of time following the initial origination) them.

As previously reported, Optimal Blue's rate lock data for September found that cash-out activity was up 6.4% from August and 54.7% from a year prior, lagging rate-and-term refi growth of 49.4% and 644.2% respectively.

Non-conforming locks, which would cover both jumbo and non-qualified mortgages, were 12.6% of the market in September, up 25 basis points from the previous month and 147 points from one year earlier.

The 13.7% share of VA locks was 20 basis points higher from August and 328 basis points over September 2023.

The MCAI is calculated using data from ICE Mortgage Technology and was indexed at 100 for March 2012.