Credit availability contracted slightly in the latest index published by the Mortgage Bankers Association, following an increase in November that was
The index, which incorporates data from ICE Mortgage Technology, inched down from 103.4 to 103.3 In December. That leaves it slightly above 100, a value that reflects the historically tight credit conditions after the Great Recession's housing crash.
Many industry stakeholders have been watching certain credit measures closely for signs that underwriting is loosening out of concern it could do so excessively like it did during the crash, but indicators still show it's historically tight. And some of the loosening reflects shifts in the product mix and industry contraction as rates have risen more than it does changes in underwriting standards.
December's small decline in the MBA index, for example, reflects in part the continuing
"If you have, let's just say, a month where we saw 20 different 30-year fixed rate programs and then suddenly you had an investor say, we're going to streamline those offerings to five, that's going to show up in the decline in the index," he said. "The other side of that from a quality perspective is if you had a higher credit score requirement. That also shows as a decline in the index."
The index also reflects a trend that's more than the sum of its parts.
Although the MBA's sub-indices all were slightly lower or plateaued in the most recent month reported, credit availability over the course of the past several months has varied by loan type. For example, while mortgages below the rising
Because the product mix does change, particularly when rates are rising as they have been, it can be difficult to gauge the markets by aggregate credit measures.
Credit scores, for example, have seen some declines in aggregate, but a large component of that shift comes from the fact that higher rates have reduced refinances and increased purchase originations. Purchase loans have lower FICOs and refis have higher ones.
"FICO scores on new originations have come down quite a bit, and a big part of the reason for that is that they had shot up considerably during the pandemic when rates were so low," said Karan Kaul, principal research associate at the Urban Institute's Housing Finance Policy Center. "I think the main driver of that is the fact that we are walking back that general tightening of credit."
Kaul doesn't see worrisome trends in current underwriting relative to that seen during the Great Recession, but noted that indices or even FICOs alone may not be the best guide, given shifts in the market's product composition over time. To that end, one thing that's reassuring is that the kind of underwriting done without regard to the ability to repay prior to the housing crash is scarce to nonexistent, and prohibited by regulation today, he said.
"Affordability right now is a much bigger concern for most people," Kaul said.
Although Karan's reluctant to use mortgage or housing credit indices as a basis for underwriting comparisons, he said an examination of one the institute produces may provide some reassurance that the purchase loan market that's becoming more dominant in the current product mix is very unlike the one that existed just prior to the housing crash.
That institute's index, which is based on an amalgamation of data from different sources and reflects the share of homebuyer loans on primary residences likely to default, has been in a range near 5%. During the housing bubble that preceded the crash, it topped 16%.
