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The MBA’s Mortgage Credit Availability Index (MCAI) increased for the fourth consecutive month in December.
The MCIA is a barometer on the availability of mortgage credit using certain guidelines from institutional mortgage purchasers. With a base of 100, the higher the index value the more available the credit. A lower value indicates a tightening of mortgage credit standards.
The MCAI simply measures the supply side of credit without examining the volume of credit provided by each investor.
The philosophy is that the index measures the types of loans available at each point in time, rather than the volume of lending that is being done. The supply of mortgage credit to the market is a function of the risk appetite of different investors and is impacted by changes to various regulations that can affect the types of loans made.
In December, the index rose across the board.
- Jumbo loans up 1.3%
- Conventional up 0.7%
- Government up 0.6%
Increases were driven by the jumbo loan programs as well as programs offered for borrowers with lower credit scores and down payments.
So we see that with rates and property values increasing, credit standards are decreasing. Consumers have access to more credit, but it will cost them more money for the home and housing payment. The expansion of credit for lower-credit-score borrowers and borrowers making smaller down payments, the risks for defaults increase.
The loosening of credit standards to allow for more consumers to have access to home financing is good, especially with homeownership rates declining. However, in a quest to increase homeownership and lending, lenders need to be careful not to expand the credit box too much or too quickly. Hopefully we’ve learned our lesson. Consumers need to be qualified to own a home, with the potential to maintain their payments.
Most agree that, after 2008, the credit standards were tightened way too much. As they now credit is relaxed, it’s important that the process is done carefully. This could help protect consumers and lenders to the risks of additional defaults.
Careful lending and solid underwriting are crucial to the continued availability of credit to all those who are qualified; while protecting those who are not. In the long run, it doesn’t do anyone any good to put people into homes that they can’t afford to maintain.
Let’s be careful out there.
