While both the calendar year—and the new Administration—is still in their respective nascent stage, early signs seem to indicate that mortgage credit is becoming more readily available this year.
The economic signposts seem to indicate that after a prolonged period of relatively tight credit, the mortgage credit market may be experiencing an easing.
A clear example of this: earlier this month, Fifth Third Bancorp reported a quarterly increase in its residential mortgages—this, despite a drop in reported earnings.
In the most recent quarter, Fifth Third’s residential mortgage loans increased 3 percent—from the $14.5 billion to $14.9 billion; that report also marked a significant 10 percent jump from 2015’s level of $13.5 billion in reported mortgage loans.
According to the Mortgage Banker Association’s (MBA) Mortgage Availability Index (MCAI), 2017 began on a positive note, as mortgage credit availability increased in December; the report found that the MCAI increased 0.6 percent to 175.2 at the end of last year. A drop in the MCAI would normally indicate tightening lending standards, while increases usually indicate a loosening of available credit; the index was benchmarked at 100 in 2012.
This trend continued in January, as the MCAI increased an additional 1.1 percent, rising to 177.1; January’s increase marked the fifth consecutive rise in the MCAI, indicating a steady loosening of available credit over the last five months.
According to Lynn Fisher, MBA’s Vice President of Research & Economics, the increases were driven “by jumbo loan programs, as well as loan programs for borrowers with lower credit scores and low down payments.”
The MCAI mines data from about 95 lenders, and produces a monthly report that is seen as one of the most reliable measurements of credit availability.
The loosening of mortgage credit availability marks a stark contrast to the credit availability situation confronted by homebuyers less than a decade ago. Between 2006 and 2008, mortgage credit availability tightened by nearly 90 percent according to a recent MBA report.
But times have definitely changed.
In real terms, mortgages are approximately twice as available today as they were only five years ago. In addition, according to a recent report by mortgage software firm Ellie Mae, lenders are approving 77 percent of homebuyers, a jump of six percent from 2015’s 71 percent approval level.
The MCAI report also found that credit availability had increased for nearly every type of loan, including a .2 percent increase in government mortgage availability; a 2.3 percent monthly increase for conventional loan availability; and an impressive monthly increase of 4.7 percent in jumbo mortgage availability.
Some have questioned whether the rising availability of credit could—at least potentially—result in a similar ‘bubble’ and subsequent meltdown that evolved from the easily available credit of a decade ago. The MBA estimates that the MCAI peaked at over 900 at the height of the housing bubble in 2006, a far cry from today’s MCAI level of 177.1
Although retaining solid credit standards remains important, given the vast gulf between the current index number and its counterpart of 2006, most industry watchers are not—as yet—concerned about a replay of the Great Recession’s housing bubble, despite the trend of a loosening credit market.