Mortgage credit rises thanks to more jumbo offerings

After coming in at its tightest in over a decade, residential lending credit loosened up marginally in March, thanks to greater offerings of jumbo and conventional products, according to the Mortgage Bankers Association.

The Mortgage Credit Availability Index, an MBA analysis of loan products on offer based on data from ICE Mortgage Technology, inched up to a reading of 100.5 in March, still near its 10-year low of 100.1 reported a month earlier. The index was benchmarked to 100 in March 2012, reflecting conditions in the aftermath of the Great Recession. 

Credit availability has shrunk by almost 20% year-over-year from a score of 125.1 in March 2022. Economic concerns and recent banking headlines could bring about even more tightening in the months ahead, according to Joel Kan, MBA vice president and deputy chief economist. 

"With the spring buying season underway, lenders are grappling with the threat of a recession and tighter overall financial conditions following the recent bank failures," he said in a press release. 

Jumbo and other conventional offerings drove the overall index upward in March. The Conventional MCAI subindex rose 1.1% month over month, with jumbo and conforming components that make it up rising by 1.4% and 0.4%, respectively. The numbers represent a turnaround from February when the Conventional MCAI dived 4.4%, with jumbo and conforming product availability similarly down by 4.4% and 4.3%.

The March rise in jumbo products came about thanks to an uptick in cash-out refinance programs, Kan said. But the trend will likely be short-lived.

"We expect banks, which account for most of the jumbo market, will tighten jumbo credit criteria in response to recent challenges in the banking sector," Kan said. Signs of bank troubles, with a run on deposits at troubled institutions, began emerging in the second week of March and continue to raise concerns about the stability of regional and community lenders, among industry analysts.  

Meanwhile, government-backed mortgage credit in March flattened compared to February, inching down 0.2%, but availability still decreased for the third time in four months. The Government MCAI includes offerings often utilized by first-time buyers for starter homes, and the reduced number of products available could potentially hinder activity in that segment of the market, Kan said.

Still, many aspiring first-time buyers appear undeterred in their goals of achieving homeownership this year, according to a new study from TD Bank. Among 1,000-plus consumers hoping to purchase in 2023, 39% said they thought it was currently a good time to buy a home, even as inflation, credit concerns and higher interest rates persist.

Those worries are not far from their minds, though, with 69% saying they were concerned about the overall economy, and 64% apprehensive about home affordability in the face of higher interest rates. But 85% viewed homeownership as a good long-term investment.

Rather than abandoning the process, many may be readjusting their expectations, TD's First-Time Homebuyer Pulse said. Approximately 59% indicated they would look for a starter home or other property that they could fix up. And 27% are already making plans to refinance when interest rates decrease.