Coronavirus Mortgage Market | Current Situation

On March 19th I got my first call from a rep of a major lender telling me all business will be on hold for 2 weeks.

Not long after that, I had that same conversation with several other reps from different companies.

Even had one lender cancel files without informing anyone. Like, what?

Don’t panic, these pauses are for most non-QM lenders, not conventional/FHA/VA.

But several guidelines have changed for almost everyone, for nearly all mortgage loan products.

What is happening?

Many lenders have increased their minimum required credit score for FHA loans to 660. This is a bit frustrating because HUD still allows FHA loans to be originated as low as 500 credit score in some cases.

Chase Bank tightened up their guidelines to require a 700 minimum credit score and 20% down payment.

Lenders are tightening up because of the extreme uncertainty in the market due to the current pandemic.

That is an especially difficult pill to swallow because borrowers will need lenders help more than ever. With loss of income for millions of borrowers, credit card debt will increase, payments will be missed.

Borrowers credit scores will drop.

They will be looking to refinance and consolidate debt once they get back to work, and back on their feet.

There are programs the government is coming up with to help stimulate the economy, and help people with getting their bills paid.

Unfortunately, a stimulus check or two won’t be a strong enough band aid to help keep up.

What We Need

In March of 2009 the government announced a refinance program called HARP, to help borrowers who were underwater on their mortgage.

This program was for anyone who had a conventional (fannie mae or freddie mac) mortgage, and was designed to help homeowners get a new, more affordable/stable mortgage.

It helped at a time when home values took a dump due to the financial crisis. And even if you were underwater on your home, you could refinance into a better mortgage.

The economy will need something similar to HARP, although not having to do with lost equity, will need to cater to borrowers with recent credit issues.

Millions of hard working people are being told they need to sit at home and wait for this virus to go away.

States are overwhelmed with extremely high unemployment claims and some people aren’t receiving unemployment right away. Many live paycheck to paycheck, and will have to make a decision to either feed their family, or make a mortgage/rent payment.

The government will need to work with lenders to have relaxed guidelines with regard to mortgage approval and recent credit hiccups.

I’m not talking about mortgage forbearance (which I highly discourage unless you absolutely have no other option), I’m talking about qualifying for a refinance or home purchase once they are back on their feet.

If government and lenders don’t come up with relaxed guidelines due to these extenuating circumstances, we (as a country) will have a high percentage of homeowners and first time home buyers that will not qualify for a mortgage refinance or new home purchase.

We are getting constant updates weekly, if not daily, with new guidelines and procedures as this lock-down progresses. Changes on requirements with appraisals, verifying employment, and closing procedures.

The main challenge right now is verifying income while many companies are shut down, and employees remain laid off.

The Good News

For borrowers with good credit who are still employed, mortgage rates are still historically low, and refinancing should be considered if you’re looking to:

Lower your rate
Consolidate debt
Do home improvements
or even shorten the term of your loan

Although most lenders don’t, we are still able to do low credit FHA and VA. Pricing isn’t as favorable as it used to be for these, but there still may be a way to accomplish your home ownership goals if you’re still employed.

We also still have some non-QM loan products available in most states, although with more conservative guidelines than before the pandemic. Right now: Max 75% LTV on purchase, and max 70% LTV on cash out refinance for these.

I am confident the economy will bounce back, and eventually will be stronger than ever. Just concerned about the timing and how everyone will be impacted.

We’ll all be forever changed when this is all over.