Mortgage credit tightens as ARMs, non-QM products are cut

Mortgage credit availability further tightened in August, with lenders pulling back on adjustable rate and non-qualified mortgage products as origination volume continues to shrink, the Mortgage Bankers Association said.

August's Mortgage Credit Availability Index fell by 0.5% to 108.3, the sixth consecutive month lenders pulled back on product offerings and remained at levels last seen over nine years ago. In July, the index was 108.8, while for August 2021, it was 123.7.

"With overall origination volume expected to shrink in 2022, some lenders continue to streamline their operations by dropping certain loan programs to simplify their offerings," said Joel Kan, the MBA's associate vice president of economic and industry forecasting in a press release. "Additionally, with a worsening economic outlook and signs of cooling in home-price growth, the appetite for riskier loan programs has been reduced." 

Originators pulled back on ARM and non-QM offerings even though some might consider those products more viable in a rising interest rate environment, the report found.

On the other hand, home equity line of credit product offerings did increase slightly during the month.

"With aggregate home equity still at elevated levels, HELOCs could benefit borrowers who might not want to give up on their current, low mortgage rate but do want to utilize their home equity to support other spending plans," Kan said.  

The government MCAI was essentially unchanged from July. Rate lock data from Black Knight indicated the demand for government-guaranteed products in August, with the continuing market share shift towards these offerings and away from conventional loans.

This shift contributed to the 1% decline in the conventional MCAI. Both components declined during the month, with the conforming MCAI down by 1.2%; the jumbo portion was down by 0.7%.

The MBA calculates this index using loan program data aggregated by ICE Mortgage Technology. The MCAI was set to 100 for March 2012.