VA program changes drive decline in mortgage credit availability

According to the latest mortgage credit availability index (MCAI) from the Mortgage Bankers Association (MBA), lending standards tightened this past December, reversing a three-month trend of loosening credit.

The MCAI’s overall December reading fell to 182.2, down 3.5% from the previous month. Decreases in the index signal that lenders are exercising more restraint when it comes to their credit standards, while increases indicate that lenders are easing their criteria.

December’s MCAI figure marks the lowest reading for the index since August 2019. The index was benchmarked to 100 in March 2012.

All of the MCAI’s component indices declined, with the conventional mortgage index falling 1.4%, bucking a recent upward trajectory of credit availability for conventional loans. The conventional index’s own component indices also dropped, with the jumbo index declining 1.3% compared to November and the conforming index falling 1.6%.

Driving the overall decrease, however, was the MCAI’s government loan index, which tracks credit availability for loans backed by the Federal Housing Administration, U.S. Department of Agriculture and U.S. Department of Veterans Affairs (VA). The government index fell 6.1% in December, continuing a downward trend since reaching an apex in April 2017 and marking its lowest reading since since 2015. 

The large decline was due to “changes to the [VA] loan program, which eliminated loan limits for certain borrowers as of Jan. 1, 2020,” according to Joel Kan, MBA’s associate vice president of economic and industry forecasting.

“This likely prompted many investors to remove VA programs in high-cost counties from their offerings,” Kan explained. “There was also a reduction in streamline refinance programs, as slightly higher rates slowed the refinance market at the end of 2019.”


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