One of the federal government’s goals for the beginning of 2015 was to loosen mortgage credit availability to the marketplace, through new programs at Fannie Mae and Freddie Mac, along with new guidelines from the Federal Housing Administration.
It appears that the push has been working.
An index of mortgage credit availability released by the Mortgage Bankers Association (MBA) shows that credit availability loosened again in May for the fourth consecutive month. The Mortgage Credit Availability Index (MCAI) rose to 122.6, up 0.5 percent from a month earlier and up more than 4 percent from January’s total of 117.8
The index benchmark level of 100 was tied to March 2012. The index essentially has risen steadily since the end of 2013, with the exception being a sharp dip from December 2014 to January 2015. Since January, however, the index has sharply risen, showing loosening of credit throughout the industry.
“Credit availability eased somewhat in May, largely as a result of increased availability of cash out refinance loans and greater availability of FHA 203K home improvement loans,” MBA Chief Economist Mike Fratantoni said in a news release.
The loosening credit standards mirror statements from the Financial Stability Oversight Council (FSOC). In its 2015 annual report, FSOC said it wanted to monitor the situation after federal banking agencies had found serious deficiencies in underwriting standards and risk management practices for certain leveraged loans. The report said the moves were in response to the historically low-yield environment that encouraged greater risk-taking as financial institutions sought incremental gains in yield.
“Although more recent data may suggest improvement in the quality of newly issued loans, the growth in loan issuance combined with the decline in credit risk premia in recent years warrants further monitoring,” the report stated.
The MCAI analyzes data from Ellie Mae’s AllRegs Market Clarity business information tool. The index has hovered around the benchmark level since the beginning of 2008. In the fall of 2007, just before the Great Recession took hold, the MCAI was around 300, and reached as high as nearly 900 in the summer of 2006.