Mortgage Credit Availability Increases in January
New Indices Released for Jumbo and Conforming Credit Availability
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Higher Index=More Credit Available
Lower Index=Less Credit Available
Mortgage credit availability increased in January according to the Mortgage Credit Availability Index (MCAI), an MBA report which analyzes data from the AllRegs® Market Clarity® product.
The MCAI increased 1.8 percent to 117.8 in January. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of a loosening of credit. The index was benchmarked to 100 in March 2012.
"Several new initiatives aimed at making mortgage credit more available and affordable to consumers were recently announced and resulted in a net loosening of credit over the month," said Mike Fratantoni, MBA's Chief Economist.
Fratantoni continued: "Fannie Mae and Freddie Mac announced new 97 LTV loan programs in December aimed at expanding access to conventional financing for new and well-qualified homebuyers. Additionally, FHA announced reductions in mortgage insurance premiums (MIP). Both of these announcements were designed to provide consumers with better access to mortgage credit.
Since these announcements, roughly 40 percent of investors have begun to offer versions of the Fannie Mae 97 LTV program (Freddie Mac's 97 LTV program will launch formally in March), and the conventional mortgage credit availability index increased three percent over the month as a result. Although the FHA MIP reductions went into effect January 26th, this initiative will be less likely to impact the MCAI, as it impacts pricing rather than availability of government credit.
Starting this month, MBA is now providing two additional credit availability indices: the Jumbo MCAI and Conforming MCAI. Growth in the jumbo loan market over the last few years has been a consistent and ongoing trend - with evidence of expansion on both the supply and demand sides of the market. These new component indices allow us to more precisely measure how credit availability is changing with regards to jumbo loan programs and their conforming (non-jumbo) counterparts."
CONVENTIONAL, GOVERNMENT, CONFORMING [NEW] AND JUMBO [NEW] MCAI COMPONENT INDICES
MBA now reports on five total measures of credit availability as part of the monthly MCAI release: the Total Mortgage Credit Availability Index, the Conventional Mortgage Credit Availability Index, the Government Mortgage Credit Availability Index, the Conforming Mortgage Credit Availability Index, and the Jumbo Mortgage Credit Availability Index, with historical data back to 2011.
All four Component Indices increased over the month with the largest gains observed in the Conventional MCAI (up 3.1 percent) and Jumbo MCAI (up 1.9 percent). The Conforming [Non-Jumbo] MCAI was up 1.8 percent, while the Government Index, which examines FHA, VA, and USDA loan programs, was up 0.9 percent.
The Conventional, Government, Conforming, and Jumbo MCAIs are constructed using the same methodology as the Total MCAI and are designed to show relative credit risk/availability for their respective index. The primary difference between the total MCAI and the Component Indices are the population of loan programs which they examine. The Government MCAI examines FHA/VA/USDA loan programs, while the Conventional MCAI examines non-government loan programs. Similarly, the Jumbo MCAI examines everything flagged as "Jumbo" while the Conforming MCAI examines loan programs that fall under conforming loan limits.
The Conforming and Jumbo indices have the same "base levels" as the Total MCAI (March 2012=100), while the Conventional and Government indices have adjusted "base levels" in March 2012. Using data from the MCAI and the Weekly Applications Survey, MBA calibrated the Conventional and Government indices to better represent where each index might fall in March 2012 (the "base period") relative to the Total= 100 benchmark.
EXPANDED HISTORICAL SERIES
The Total MCAI has an expanded historical series which gives perspective on credit availability going back approximately 10-years (expanded historical series does not include Conventional, Government, Conforming, or Jumbo MCAI). The expanded historical series covers 2004 through 2010, and was created to provide historical context to the current series by showing how credit availability has changed over the last 10 years - this includes the housing crisis and ensuing recession. Data prior to March 31, 2011, was generated using less frequent and less complete data measured at 6-month intervals and interpolated in the months between for charting purposes.
The MCAI provides the only standardized quantitative index that is solely focused on mortgage credit.
The MCAI is calculated using several factors related to borrower eligibility (credit score, loan type, loan-to-value ratio, etc.). These metrics and underwriting criteria for over 95 lenders/investors are combined by MBA using data made available via the AllRegs® Market Clarity® product and a proprietary formula derived by MBA to calculate the MCAI, a summary measure which indicates the availability of mortgage credit at a point in time. Base period and values for total index is March 31, 2012=100; Conventional March 31, 2012=69; Government March 31, 2012= 222.
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