The Myth of Mortgage Credit Availability

Recent reports that mortgage credit availability is increasing would have you believe that the banks are lending like its 2006. A little perspective, however is in order.

Mortgage credit availability is measured by a single index number ranging from zero to one thousand and is referred to as the Mortgage Credit Availability Index (MCAI). The MCAI is calculated using several factors related to borrower eligibility (credit score, loan type, loan-to-value ratio, etc.). A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of a loosening of credit.

Mortgage Credit Availability Index (MCAI), Index Level by Month

The monthly credit availability index (chart) is produced by the Mortgage Bankers Association and is a relatively new measure. Beginning June 2004 the MCAI was at an index level of approx. 400. Credit continued to expand and did not peak until the second quarter of 2006 where the MCAI peaked at 868.71. The MCAI declined sharply thereafter, settling in late 2007 or early 2008, in the neighborhood of 100.

Although credit expanded even after homeownership (rate) peaked at 69.2% in Q2 2004, credit availability ultimately collapsed, and has barely increased in the 8 years following. The index was benchmarked to 100 in March 2012.

In January of 2017 the MCAI was reported at 177.1, and had increased 1.1 percent from 175.2 in December 2016. Per a Mortgage Bankers Association (MBA) press release, Lynn Fisher, its Vice President of Research and Economics said “Mortgage credit availability increased for the fifth consecutive month in January, driven by increased availability of jumbo loan programs.”

It is important to note that the Jumbo MCAI examines conventional programs outside conforming loan limits which is primarily facilitated by non-bank lenders. As a result of post-recession financial restrictions in hopes of preventing another financial crisis — particularly where conventional lending is concerned, non-bank lenders have emerged in recent years to fill the gaps in the market caused by tightened lending standards and new regulatory capital requirements applied to banks.

It is my observation that the increase in the MCAI is a false positive, as it is not a result of relaxed credit, but alternative credit made available by non-bank lenders.

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