Mortgage credit availability rose in September to its highest level in four months, according to the Mortgage Credit Availability Index (MCAI) from the Mortgage Bankers Association (MBA).

The MCAI rose by 0.4% to 104.4 in September, remaining slightly above the threshold of 100 to which the index was benchmarked in 2012. The government component index of the MCAI increased by 0.8%, while the conventional component notched just a 0.1% increase.

Joel Kan, vice president and deputy chief economist at the MBA, noted in a press release that the rise in mortgage credit availability in September, which reflects a loosening in lending standards, largely came from growing adjustable-rate mortgage (ARM) volumes.

“The ARM share of applications has moved higher recently because ARM loan rates remain around 80 basis points lower than fixed-rate loans,” said Kan. This has led to increased ARM products and “broader eligibility requirements,” he said.

Rising ARM share also explained a marginal increase in mortgage credit availability in August, the MBA reported last month. The MCAI clocked in at 104 in August, compared to September’s 104.4.

“Because bank funding costs are more sensitive to Federal Reserve rate cuts than fixed-rate mortgage rates, it is not surprising to see more ARM offerings,” Kan added.

Easing mortgage rates in the weeks preceding the Federal Reserve’s mid-September policy meeting led ARM applications to rise to nearly 10% of applications for the week ending Sept. 5, according to the MBA’s weekly survey of mortgage applications.

The average rate for 5/1 ARMs decreased to 5.77% from 5.9% that week, considerably lower than fixed-rate loans. ARM shares fluctuated between 8% and 10% of total mortgage applications for the remainder of September.

ARM momentum has carried into the first days of October, also. For the week ending Oct. 3, ARM share rose to 9.5% of total applications, up from 8.4% the week prior. Markedly lower rates for ARM products has made them more palatable for prospective borrowers.

For the week ending Oct. 3, the average contract interest rate for 5/1 ARMs — whereby a borrower pays a fixed mortgage rate for the first five years of the loan term, after which it adjusts on an annual basis — fell to 5.49% from 5.74% the week prior. MBA data also showed 30-year fixed-rate loans with conforming balances averaged 6.43%, while 30-year fixed mortgages backed by the Federal Housing Administration averaged 6.19%.