Mortgage credit availability falls to lowest level in decade

Mortgage credit availability fell to its lowest level in a decade as lending tightened amid ongoing instability in the banking sector, according to data released Tuesday by the Mortgage Bankers Association (MBA). 

MBA’s Mortgage Credit Availability Index decreased by 0.9 percent in April to 99.6. A decline in the index reflects tightened lending conditions while an increase indicates loosened conditions. 

“Mortgage credit availability declined in April to the lowest level since January 2013, reflecting the tightening in broader credit conditions stemming from recent banking sector challenges and an uncertain economic outlook,” Joel Kan, MBA’s vice president and deputy chief economist, said in a statement. 

“The contraction was driven by reduced demand for loan programs such as certain adjustable-rate mortgage loans, cash-out and streamline refinances, and those with lower credit score requirements,” Kan added. 

Tightened lending conditions last month occurred amid larger distress in the banking sector, which led to the federal seizure and sale of a west coast regional bank last week. 

San Francisco-based lender First Republic Bank was seized by regulators and sold to JPMorgan Chase on May 1 after it struggled in the fallout of the collapses of Silicon Valley Bank and Signature Bank, which were both taken over by the Federal Deposit Insurance Corporation in March. 

Yet, Federal Reserve Chairman Jerome Powell said Wednesday, following a vote last week to again raise interest rates, that the banking sector has improved since the March turmoil and the system is “sound and resilient.”  

“There were three large banks from the very beginning that were at the heart of the stress we saw in early March. “Those have all been resolved, and all the depositors have been protected,” Powell said. 

Despite stress in the banking sector, inventory conditions remain a critical challenge in the housing market, Kan said.  

“Even with high mortgage rates and reduced credit availability, the lack of for-sale inventory continues to be the biggest hurdle to more home purchase growth this year.”