The Mortgage Credit Availability Index (MCAI) declined 16% in March 2020, as reported by the Mortgage Bankers Association (MBA). A rising index means credit standards are loosening, making it easier to qualify for a mortgage. In contrast, March’s declining index number indicates credit standards are tightening, raising the standards to qualify.

The total MCAI decreased 16%, broken down into a 24% decrease of the Conventional MCAI and a 7% decrease of the Government MCAI.

Further, the MCAI for jumbo loans decreased 37%, while conforming loans – which already have higher qualifying standards – only decreased 3%.

Recession confidence

This 16% plunge was the steepest drop for a single month since the index was first reported in 2011. This tracks with economic data, since the last time the U.S. experienced a shock to its system comparable to March 2020’s economic fallout was during the 2008 recession and financial crisis, before the index began.

However, the MBA estimates the decline in mortgage availability heading into the 2008 recession was exponentially more significant — though spread out over several months — than what occurred during March 2020. That’s because access to credit was extremely loose during the Millennium Boom, when all that was needed was a pen and a pulse to qualify for a mortgage.

During the recession, qualifying standards were re-examined and the ability to repay rules were put in place. As mortgage qualifying standards have remained tight over the past decade, the MCAI doesn’t have far to fall in comparison.

Still, mortgage lenders are aware of the recession we are hurtling towards this summer, the effects of which we are already experiencing even if the official definition for a recession (several months of declining economic activity) has not yet been met. Well aware of the continued job losses and reduced incomes that will accompany the 2020 recession, lenders are being extra cautious about who they approve.

Qualifying balance

Lenders are walking a tightrope this spring, as they attempt to find the balance between maintaining enough mortgage volume to sustain their own incomes — keeping interest rates low — and granting only those loans they can expect will meet qualifying standards.

Sources at the MBA cite the anticipation of mortgage forbearance and defaults in 2020 as a reason to restrict mortgage credit. In fact, as of April 20, 2020, 6% of mortgage loans nationally were in forbearance. This is an enormous jump from just 0.25% at the beginning of March 2020.

Under a mortgage forbearance program, the property owner who is unable to make mortgage payments comes to an agreement with their servicer to temporarily forego exercise of the servicer’s rights on a default to foreclose, while the owner takes steps to bring their mortgage payments current.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act provides for homeowners by creating a forbearance program for federally-backed mortgage loans. Property owners unable to pay their mortgage need to contact their servicer to find out if they are eligible to enter a forbearance program. Read more about the CARES Act mortgage forbearance program here.