Entering a Bank of America branch in New York sets the stage for a financial journey.
Scott Mlyn | CNBC
In an unpleasant twist, qualifying for a mortgage in July became more challenging, alongside the burden of higher mortgage rates. The Mortgage Bankers Association (MBA) reports that credit availability dropped to its lowest level since 2013, signaling a further tightening of lending standards.
All loan types experienced declines in availability, but jumbo loans faced the most significant setback. Banks are increasingly grappling with liquidity issues, making it difficult to sell jumbo loans to Fannie Mae and Freddie Mac. Consequently, banks bear the weight of such loans on their own balance sheets.
The demand for home loans has waned due to elevated mortgage rates. The MBA’s latest weekly survey reveals a 26% year-over-year decrease in mortgage applications for home purchases and a 32% plunge in refinance demand.
“As origination volumes decline, lenders’ profits dwindle, prompting them to streamline loan offerings and reduce operational costs,” explains Joel Kan, an economist at the MBA.
The decline in credit availability stems, in large part, from the reduction in cash-out refinance programs.
With the current average rate for a 30-year fixed mortgage standing at around 7%, more than double the rate from two years ago when refinancing was thriving, most borrowers shy away from trading a 3% rate for a 7% rate solely to extract cash from their homes. Alternately, they are turning to home equity lines of credit, secured by second liens.
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