Mortgage credit loosens on products targeted at higher-rates

Mortgage credit availability improved in December, a result of lenders bringing out products that are suited for the higher interest rate environment the housing market was — and remains — in.

The Mortgage Bankers Association's Mortgage Credit Availability Index rose by 0.7% to 96.6 from 95.9 in November.

In December 2024, the index was 92.1, which was the lowest in a decade.

This increase was "driven by more offerings for ARMs and cash out refinances that are primarily for borrowers with better credit," said Joel Kan, the MBA's deputy chief economist. "These factors led to a slight rebound in conventional credit compared to the previous month."

Adjustable-rate mortgages normally gain popularity among borrowers when mortgage rates move higher, as they have since the end of September. The MBA's most recent Weekly Application Survey put the 30-year fixed rate conforming mortgage at 6.99%, while the Freddie Mac Primary Mortgage Market Survey averaged 6.93%.

Similarly, cash-out refi volume also tends to improve in higher rate environments, relative to rate-and-term, because these borrowers typically have a need for the money and are taking advantage of built-up equity.

The most recent rate lock data from Optimal Blue shows this dichotomy. In August, September and October, when mortgage rates dipped, rate-and-term lock volume topped cash-out. But it flipped in November after the market turned.

Refi volume was just under 41% of last week's application activity, which Kan had ascribed to volatility in Veterans Affairs loans.

The conventional MCAI rose from November by 1.3%. This is due to the jumbo component increasing by 2.3%, which Kan pointed out is the highest level since August.

But the conforming MCAI, the other part of the conventional, was down by 0.7%.

The government product index was unchanged from the prior month.

The MCAI was set at 100 in March 2012. It is calculated by the MBA using data from ICE Mortgage Technology.