Mortgage credit loosest since October as rates fall

Mortgage credit during July was at its loosest since last October as lenders are adding cash-out refinance products as well as adjustable-rate mortgages to their menus in a falling interest rate environment.

July's Mortgage Credit Availability Index was 98.1, up from 95 in June and 96.3 for the same month in 2023, the Mortgage Bankers Association said.

"We also saw credit supply expand for jumbo loans, particularly in the [non-qualified mortgage] space," Joel Kan, the MBA's deputy chief economist, said in a press release. "Industry capacity has been low for some time, but we have now seen more than six months of credit expansion, which should be supportive for homebuyers and refinance borrowers, as rates have declined in recent weeks."

It is the second consecutive month that MBA is attributing credit availability growth to cash-out refis.

The share of refinance activity in general over recent weeks has been on the upswing as mortgage rates have generally trended with the downward shift in the 10-year Treasury yield.

The most recent rate lock data from Optimal Blue, for Aug. 6, put refinance share at just under 30%. The MBA's own Market Composite Index for refis increased 15.9% for the week of Aug. 2.

More loosening in refinance-specific products is likely. That's because the recent drop in the 10-year Treasury meant that as of Aug. 6, 2.4 million borrowers were in the money to swap out their current mortgage, a gain of 900,000 or 60% in a week, according to Andy Walden vice president of research and analytics at ICE Mortgage Technology (ICE Mortgage Technology provides the product information used by the MBA to calculate the index).

The government portion of the MCAI did decline slightly, by 0.1% in July versus June. But the conventional MCAI rose 6.4%.

The conventional index is divided into two components, with the jumbo side up huge, gaining 9.3%. Conforming credit also increased, but by just 0.7%.