The pandemic caused a number of lenders to tighten standards as they face the unknown, and jumbo loans – those retained by banks after closing – took the biggest hit.
WASHINGTON – Mortgage credit availability decreased in March according to the Mortgage Bankers Association’s (MBA) Mortgage Credit Availability Index (MCAI).
The MCAI fell by 16.1% in March.
An MCAI decline indicates that lending standards are tightening and increases indicate loosening credit. The latest downturn reflects lenders’ concerns as the pandemic started expanding in March.
However, the decline in ease for obtaining a conventional mortgage – one that lenders know they can sell to Fannie Mae, Freddie Mac, etc. – fell only a bit (2.7%), while the MCAI for jumbo mortgages fell 36.9%.
Jumbo mortgages are for amounts greater than the ones banks can easily sell to Fannie Mae and Freddie Mac, and if they wish to sell a jumbo loan to maintain liquidity, the usually have to sell it to other banks. The maximum amount for a conforming loan is $510,400 in most U.S. counties, with the limits set by the Federal Housing Finance Agency (FHFA).
“Mortgage credit supply decreased 16% in March to the lowest level since June 2015, with declines in availability across all loan types,” says Joel Kan, MBA’s associate vice president of economic and industry forecasting. “There was a reduction in the availability of loans with lower credit scores and higher LTV ratios, and the largest pullback came from the jumbo and non-QM (non-qualified mortgage) space.”
Kan says March’s data “highlights the large retreat from jumbo and non-QM investors due to a sharp drop in liquidity. Lenders are making credit criteria changes to account for the increased likelihood of forbearance and defaults, as well as higher costs.”
Homebuyers planning to use a jumbo mortgage loan could find it a bit harder going forward with unexpected delays. They may also have to cast a wider net to find a lender or consider some type of other arrangement, such as a piggyback loan that would qualify some of the money for conventional financing.