As if higher mortgage rates weren’t enough, it was harder even to qualify for a mortgage in July than it has been in a decade, according to the Mortgage Bankers Association.
Its monthly index measuring credit availability dropped in July to the lowest level since 2013, indicating that lending standards are tightening even further.
While availability for all loan types dropped, the component of the index for jumbo loans decreased the most, as banks face increasing liquidity issues. Jumbo loans cannot be sold to Fannie Mae and Freddie Mac, so they are usually held on bank balance sheets.
Higher mortgage rates have caused demand for home loans to drop. Mortgage applications to purchase a home are 26% lower than they were a year ago, and refinance demand is off 32%, according to the MBA’s most recent weekly survey.
“Declining origination volumes have led to lower profitability for many lenders, resulting in narrower loan product offerings to reduce operational costs,” said Joel Kan, an MBA economist, in a release.
A drop in cash-out refinance programs was a major component of the overall drop in credit availability.
The average rate on the 30-year fixed mortgage is now hovering around 7%, more than double what it was just two years ago when refinancing was booming.
Most borrowers today would rather not have to trade out a 3% rate for a 7% rate just to pull cash out of their homes. They are instead turning to home equity lines of credit, which are second liens.