It turns out, maybe lenders have loosened credit a little more than the Mortgage Bankers Association (MBA) initially thought.
The association reports that it has adjusted the methodology used for its Mortgage Credit Availability Index (MCAI), thus making the index more accurate. As a result, it has revised the report’s entire historical series so that it is in line with the new methodology.
As part of this change, the report’s separate conforming and jumbo indices have been updated to only include conventional, non-government loan programs.
“In the three years since its inception, we have been monitoring the MCAI, always looking for opportunities to improve the series and provide a more accurate gauge of credit availability,” explains Lynn Fisher, vice president of research and economics for the MBA, in a statement. “We expanded our historical series to cover over 10 years of historical data and followed that with the introduction of four MCAI sub-indices (conventional, government, conforming and jumbo) to help users better understand what is driving changes in the overall MCAI.
“Today, we are excited to announce an updated methodology that responds more effectively to changes in the marketplace and better accounts for the frequent addition and subtraction of investor offerings,” she adds. “While using the exact same data, this updated methodology does a better job of reflecting new loan programs that did not exist in the base month of the index, which is March 2012. In addition, we are redefining our conforming and jumbo indices to be restricted to conventional loan programs only. Previously, conforming and jumbo status was determined solely by loan size. In the new methodology, high-balance [Federal Housing Administration] and [Veterans Affairs] loan programs are not included in the jumbo category.”
The report shows that mortgage credit availability increased 1.0% in July relative to June to reach an index score of 165.3.
A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit.
Month over month, the Jumbo and Government indices included in the report saw the greatest increases in credit availability – both up 1.3%.
Meanwhile, the conventional and conforming indices were up 0.7% and 0.1%, respectively.
“The main difference with this change is that the prior methodology had shown a tightening of credit over the past few months,” Fisher says. “The new methodology shows a modest loosening of credit availability over this time period – in line with other indicators of credit availability. This is a result of new jumbo loan offerings that did not exist in our 2012 base period becoming more popular and prevalent in recent periods. Our new methodology captures the addition of these new loan offerings more effectively and better aligns with anecdotal evidence of loosening credit conditions over the last seven months.”
Fisher adds that the overall increase in credit availability in July “was driven by an uptick in programs that allow for refinancing among relatively lower credit score borrowers. We observed this trend in both the conventional and government programs.”