Mortgage credit tightens on jumbo concerns, loan costs

Originators continued to reduce their loan product offerings in July in an effort to manage costs while origination volume lags, the Mortgage Bankers Association said.

Its Mortgage Credit Availability Index fell to 96.3 in July, compared with 96.6 for June and 108.8 one year ago.

"Mortgage credit availability declined to its lowest level since 2013, as lenders pulled back on underutilized loan programs and as liquidity concerns remain for some jumbo lenders," said Joel Kan, deputy chief economist, in a press release. "Declining origination volumes have led to lower profitability for many lenders, resulting in narrower loan product offerings to reduce operational costs."

In particular, as interest rates rose during the month, originators pulled cash-out refinance products from their menu, Kan pointed out. Borrowers instead sought home equity and unsecured consumer loans to meet that need.

Independent mortgage bankers lost $1,972 per each loan originated in the first quarter. While gain-on-sale margins have improved for most lenders that have reported second quarter results, cost management is still a concern for companies like Rocket.

This marks the fourth consecutive month that the index was below the base value of 100, which was established for credit conditions in March 2012, when the housing market was still dealing with the aftermath of the financial crisis.

While the total MCAI dropped 0.3% month-to-month in July, the conventional product index was down 0.5%.

The component of the conventional MCAI that measures conforming credit rose 0.2% versus June, which is indicative of lenders loosening product guidelines for government-sponsored enterprise mortgages.

But the jumbo portion declined for the third straight month, this time by 0.8%. Banks are the primary source of jumbo product offerings because they are not obligated to sell them in the secondary market.

However, the fallout from the failures of Silicon Valley Bank, Signature Bank and First Republic Bank, and upcoming changes in capital regulations has affected depositories' willingness to offer nonconforming loans.

For the week of July 7, both conforming and jumbo mortgage rates topped 7%, according to the MBA's Weekly Application Survey. They were at 7.07% and 7.04% respectively, although by the next week both had backed down. For the July 28 survey, conforming loans were at 6.95% and jumbo rates were at 6.89%.

Meanwhile, the government MCAI fell by 0.1% in July from June.

The MBA uses data from ICE Mortgage Technology (the successor owner of original partner AllRegs) to calculate the index.