Bank Lending On The Rise As Rates Increase


I’ve been saying for almost a year now that higher rates would lead to more bank lending. It is happening……

From the MBA

Mortgage credit availability increased slightly in February, according to the Mortgage Credit Availability Index (MCAI), a report from the Mortgage Bankers Association (MBA), which analyzes data from the AllRegs® Market Clarity® product.

“For the third month in a row, mortgage lenders and investors slightly expanded credit offerings in February on net, as a result of offsetting factors,” said Mike Fratantoni, MBA’s Chief Economist. “There was significant pull-back among 3/1 ARM programs. The recently implemented QM/ATR sections of the new CFPB regulations stipulate that ARM loans must qualify at the highest allowable rate for the first five years of the loan. Many investors have discontinued loans whose interest rate adjusts after only 3 year (also known as 3/1 ARMS).

“While there was significant pull-back on these 3/1 programs, lenders and investors added several new 5+ year ARM programs, including those for jumbo loans, to their repertoire, resulting in a net increase to the MCAI.”

The MCAI increased 0.44 percent from 113.0 in January to 113.5 in February. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of a loosening of credit. The index was benchmarked to 100 in March 2012. If it had been tracked in 2007, it would have been at a level of roughly 800, indicating the credit was much more available at that time.

Now, before the housing bears out there start getting all hysterical about the rise and start yelling “subprime” … “bubble” … “loose lending standards” … let’s take a look at the chart below and compare where we are now to 2006….

Mortage Credit Bank Lending

Via ValuePlays

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About the Author

Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.

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