Mortgages became a bit harder to qualify for in September, as lenders cut back on certain loan offerings, according to figures released today by the Mortgage Bankers Association (MBA)
The MBA's index of mortgage credit availability dropped 0.7 points in September, to a reading of 110.7, the second such monthly decline in a row. A lower number indicates mortgages are becoming more difficult to obtain.
Lenders scaling back on long-term loans
The drop was mostly attributed to lenders scaling back on offerings of mortgages with 40-year terms in anticipation of new federal guidelines that take effect after the end of the year.
"Credit availability tightened last month as more lenders removed program offerings with loan terms greater than 30 years and/or interest-only features, similar to the trend we observed last month," said Mike Fratantoni, MBA vice president of research and economics. "Just as before, we believe this reflects lenders implementation of the Ability to Repay/Qualified Mortgage regulation which comes fully into effect in January."
The Qualified Mortgage rule establishes standards for mortgages receiving the best rates when backed by Fannie Mae and Freddie Mac. A measure intended to avoid a repeat of last decade's housing bubble and collapse, it's intended to help identify which mortgages are most likely to be repaid and not fall into foreclosures.
Credit easing on jumbo mortgages
While the availability of some loan types was reduced, lending standards eased in September for jumbo mortgages and loans with high loan-to-value ratios; that is, mortgages with smaller down payments or refinancing with less equity.
The MBA's mortgage credit index is tied to a scale in which a reading of 100 reflects the availability of mortgage credit in March 2012. Had the index been tracked during the housing bubble years, credit availability would have been at a level of roughly 800 in March 2007, a reflection of just how much things have changed since then.