Mortgage credit availability increased 0.8 percent in December, indicating loosening lending standards that can help more borrowers qualify for a loan.
The Mortgage Credit Availability Index, a report from the Mortgage Bankers Association, rose to 125.9 percent.
An increase in the MCAI indicates lending standards are loosening, while a decrease indicates tightening credit.
When the pandemic began, banks and other lending institutions quickly tightened their lending standards.
These standards are now beginning to loosen in efforts to provide borrowers with more options and opportunities.
Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting, said December’s growth was a result of more adjustable-rate mortgages and lower credit score loan programs.
He said lenders expanded their offerings to qualified borrowers who were most impacted by the market conditions.
The increase in government streamline refinance programs also contributed, Kan said, which helped those who wanted to refinance before rates rose higher.
Kan said he thinks the increase in credit will help households that either have newer credit history or had a credit event that resulted in lower scores.
Overall mortgage credit in December was up 3 percent from a year earlier, but there was a 34 percent increase in jumbo credit availability.
Jumbo loans are nonconforming loans for borrowers with lower risk profiles. The amounts are higher than what Fannie Mae or Freddie Mac allows.
While mortgage credit availability is still below average, it’s now at the highest level since May 2021.
Kan said the easing of mortgage lending standards will be especially important for market health this year with rising mortgage rates and home prices.
The MBA calculates its index based on borrower eligibility — which includes credit scores, loan types, and loan-to-value ratios — from the underwriting criteria of more than 95 lenders and investors.
Lenders can expand their reach by offering more loan options and loan modification options, experts say, especially to those coming out of forbearance.
Market experts have been encouraging lending institutions to assist borrowers as much as possible by providing these additional options, and by making borrowers more aware of the options available to them.
Many lenders have been pushing refinance options despite rising rates, because of the record amounts of equity locked into homes that borrowers can use to their advantage.
While home equity lines of credit nearly disappear in times of crisis, they have started to make a comeback as the economy improves and home prices remain high.