Mortgage loans in September were the tightest since February 2014 as a weak economy led lenders to raise standards Association of Mortgage Lenders said in a report on Thursday.
The group’s mortgage credit availability index fell 1.9% last month to 118.6, indicating stricter borrowing requirements. The index fell from Record highs at the end of 2019 after the COVID-19 pandemic caused the worst economic slump since the Great Depression.
“The Real estate market overall on a solid footing, but data shows that lenders face the surge in Mortgage rates in the second quarter and ongoing economic uncertainty, ”said Joel Kan, an MBA Associate Vice President.
Part of the decrease in credit availability was due to lenders discontinuing floating rate mortgages that are aligned with the London Interbank Offer Rate, or LIBOR, Kan said. LIBOR will expire for almost a decade after regulators discovered traders tampered with the rate set by the UK’s largest banks.
In addition, lenders have reduced the availability of credit for borrowers with small down payments and low credit scores, Kan said.
“Across all loan types, there are still fewer low-credit, high-LTV loan programs,” Kan said, referring to the mortgage lending value or the amount of the mortgage versus the value of the property.
The US economy 31% shrunk in the second quarter year-over-year as the nation struggled to contain the worst public health crisis in more than a century. It was the sharpest decline in GDP since the Great Depression, according to the Economic Analysis Office.
