August 9, 2023: As if higher mortgage rates weren’t enough, qualifying for a mortgage in July was more complex than in a decade, according to the Mortgage Bankers Association. It means that lending standards are tightening even further.

While availability for all loan types dropped, the index component for jumbo loans dropped the most as banks faced increasing liquidity issues. Jumbo loans cannot be sold to Fannie Mae and Freddie Mac, so they are usually held on bank balance sheets.

Higher mortgage rates have caused demand for home loans to drop. Mortgage applications to purchase a home are 26% lower than a year ago, and refinance market is off 32%, according to the MBA’s most recent weekly survey.

“Declining origination volumes have led to lower profitability for many lenders, resulting in narrower loan product offerings to reduce operational costs,” said Joel Kan, an MBA economist, in a release.

A decline in cash-out refinance programs was a important component of the overall drop in credit availability.

The average fees on the 30-year fixed mortgage is presently hovering around 7%, more than double what it was just two years ago when refinancing was booming.

Most borrowers today would sooner not have to trade out a 3% rate for a 7% rate to draw cash out of their homes. They are instead turning to home equity lines of credit, which are second liens.