Looser mortgage credit may give first-time buyers a chance
Looser mortgage credit may give first-time buyers a chance
Mortgage credit showed signs of loosening up in March, and with it, more availability for lower credit scores and high LTV products to enter the housing market, the Mortgage Bankers Association said in a report on Thursday.
The group’s Mortgage Credit Availability Index rose .6% to 125.4 last month, a positive indicator after pandemic-driven factors plunged the index from record highs previously seen in late 2019.
Measuring mortgage credit availability by loan type, the Conforming MCAI that tracks loans backed by Fannie Mae and Freddie Mac rose .02%. The Conventional MCAI that measures loans not backed by the government gained .8%.
The Government MCAI that includes mortgages backed by the Federal Housing Administration, the Veterans Administration and the U.S. Department of Agriculture increased for the sixth time in seven months to its highest level in a year – up .4%, the MBA said.
Most notably, the Jumbo MCAI measuring high-balance loans rose 1.5%, also increasing for the sixth consecutive month. It’s an indicator that the non-QM sector is showing a strong rebound after many lenders pulled back from jumbo products in the first half of 2020.
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According to Joel Kan, MBA’s associate vice president of economic and industry forecasting, jumbo availability is increasing again as the economy regains its footing and coincides with the strong demand for homebuying and accelerated home price growth in many markets
To recap, a decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening mortgage credit.
“As we look ahead to the expected growth in the purchase market, which will be driven by millennials and first-time home buyers, credit availability to qualified borrowers will play an important role in supporting this demand,” said Kan.
Recent data from the National Association of Home Builders and Wells Fargo Housing Market Index revealed that first-time home buyers accounted for almost half (43%) of the new home market in 2021, up from 32% in 2018.
According to the index, roughly two-thirds of the homebuilders surveyed reported that more than 20% of their homes were sold to first-time homebuyers while 27% of builders said more than half of their sales were to first-timers.
Because this cohort is more likely to not have as much saved up for a down payment, more likely to have a lower credit score and an increased chance they are also balancing student loan debt, looser mortgage credit availability will help to get this generation closer to homeownership.
Freddie Mac’s latest consumer confidence survey offered a glimmer of hope on those less worried about paying for their mortgage. Still, it highlighted that prices for homes are still at record highs, inventory is still at historic lows, and many middle- and lower-middle income prospective buyers are still being edged out of the marketplace by established owners and those with credit scores in the upper 700s.
Overall, there is still plenty of room to grow before this generation can fully seize the opportunity. One possible solution being tossed around is President Joe Biden’s proposed $15,000 homebuyer tax credit for first-time buyers. If passed, the tax credit would cover a borrower’s entire down payment for a home in 40 of the 50 largest U.S. metros, according to Zillow.
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