Setting The Stage

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30 | Th e M Rep o RT o r i g i nat i o n s e r v i c i n g a na ly t i c s s e c o n da r y M a r k e t ORIGINATION The LaTesT credit availability Up in February offsetting factors lead to a slight rise in credit offerings. M ortgage credit avail- ability opened up for the third straight month in February, the Mortgage Bankers Asso- ciation (MBA) reported in its monthly index. MBA's Mortgage Credit Availability Index (MCAI), a measure of borrower eligibility and underwriting criteria from more than 85 lenders, moved up half a percentage point to 113.5 in February, building on an increase of two points recorded in January. Once again, the expansion in credit offerings in February was the result of offsetting factors, including changes in lending brought on by the Consumer Financial Protection Bureau (CFPB), said MBA chief economist Mike Fratantoni. "Specifically, the recently implemented QM/ATR [qualified mortgage/ability-to-repay] sections of the new CFPB regulations stipulate that ARM [adjustable- rate mortgage] loans must qualify at the highest allowable rate for the first five years of the loan. As a result, many investors have discontinued loans whose interest rate adjusts after only 3 year[s] (also known as 3/1 ARMS)," Fratantoni explained. On the other hand, "[w]hile there was significant pull-back on these 3/1 programs, lenders and in- vestors added several new 5+ year ARM programs, including those for Jumbo loans, to their reper- toire resulting in a net increase to the MCAI." The base level for the index is 100, a benchmark set in March 2012. Had the index existed in 2007, it would have sat at a level of roughly 800. Purchase app volumes down to 18-year low The purchase market hasn't recovered the way analysts had hoped. a moderate pickup in refinance activity brought total mortgage application volume up slightly in February despite a steep drop in home purchase applications. The Mortgage Bankers Association's (MBA) application data for last month showed a 0.1 percent bump in total application volume, down from a gain of 2.5 percent in January. Growth was toppled by a 9.0 percent drop in applications for home purchases, which were at their lowest level in more than 18 years in February—despite a 9 percent week-over-week improve- ment to close out the month. Paul Diggle, property economist for macroeconomic research firm Capital Economics, said the sharp decline was likely the result of the Consumer Financial Protection Bureau's (CFPB) qualified mort- gage (QM) rule, which—after a year of build-up—finally kicked in halfway through the month. "While the rule is not par- ticularly onerous, consumers' perception of a tightening in credit conditions as a result of the QM rule could have weighed on applications in February," Diggle said. In the long run, however, Capital Economics maintained QM is "unlikely to be a significant constraint on mortgage lending." On the refinance side, ap- plications were up 4.8 percent compared to January as MBA's measured of long-term fixed rates fell 13 basis points to 4.49 percent. Even with the increase, refi- nance applications remain down 60 percent compared to this time last year, when mortgage rates were still in the 3 percent range. With rates slated for a steady in- crease over the year and refinance opportunities fast disappearing, "the scope for significant gains in refinancing volumes is limited," Diggle said. As always, though, there's a sil- ver lining, as Diggle noted: "One potential upshot of the end of the refinancing boom is a loosening in credit conditions, as lenders look to replace profits lost on refinancing with lending for home purchase. Indeed, consistent with that, typical loan-to-value ratios are rising." 9% percent drop in applications for home purchases in February. — Mortgage Bankers Association

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