Mortgage Credit Accessibility Hits Lowest Point in a Decade

For prospective homebuyers and borrowers looking for house loans, an even bigger problem lies against the backdrop of rising mortgage credit accessibility rates. 

A worrying trend is seen in recent data from the Mortgage Bankers Association (MBA): The mortgage qualification requirements underwent a significant tightening in July, creating the most difficult financing climate in a decade. 

The MBA’s monthly credit availability index, which has fallen to its lowest level since 2013, underlines this transition by highlighting the growing difficulties in obtaining home loans.

Although the effects of the credit crisis are seen across a number of loan types, jumbo loans have been the hardest hit. Jumbo loans have seen a greater decline in availability despite being fundamentally more significant due to their higher value.

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Rising Interest Rates Reshape Mortgage Landscape

The banks’ increasing liquidity problems are the main cause of this drop. Jumbo loans often stay on banks’ balance sheets, increasing the severity of their existing liquidity limitations. This is because conventional loans can be sold to government-sponsored organizations like Fannie Mae and Freddie Mac, whereas conventional loans cannot.

The rising mortgage rates, which have dimmed the demand for home loans, have been one major factor in this circumstance. The MBA’s most recent study highlights a 26% reduction in mortgage applications for house purchases and a startling 32% decline in refinance demand when comparing this year’s results to the same period a year earlier. 

In order to save operational costs, lenders have been forced to restructure and streamline their loan offerings due to the cascading effect of these declining origination volumes. In this changing environment, the decline in loan availability is linked to a sharp decline in cash-out refinance schemes. 

These programs have decreased as a key component of the wider contraction in lending alternatives, thus restricting borrowers’ options for financial flexibility. In addition, the current average interest rate for a 30-year fixed mortgage is around 7%, which is a dramatic contrast to the years before when rates were much lower. 

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Source: www.cnbc.com