Applying For A Mortgage During The COVID-19 Pandemic
BREAKING NEWS: Applying For A Mortgage During The COVID-19 Pandemic
Applying For A Mortgage During The COVID-19 Pandemic may be challenging for certain mortgage borrowers. The coronavirus pandemic not only devastated the U.S. economy but turned the mortgage industry into chaos. All non-QM lenders have suspended their operations. Clear to close on non-QM loans has been nullified. Non-QM loans include bank statement loans for self-employed borrowers, asset depletion mortgage programs, no waiting period after bankruptcy and/or foreclosure, Jumbo mortgages, and other alternative financing mortgage programs. Some non-QM lenders have gone out of business while others filed for bankruptcy.
Many lenders have halted FHA and VA manual underwriting and FHA 203k loan programs. Lenders increased loan level pricing adjustments (LLPA) on layered risks. Charging high rates for borrowers with under 700 credit scores was the norm. Not only did borrowers with under 700 credit scores get charged high mortgage rates, but they were also charged discount points. Many lenders stopped doing lender-paid compensation and changed to borrower-paid. HUD, VA, USDA, Fannie Mae, Freddie Mac did not change their agency mortgage guidelines. However, many borrowers with lower credit scores had trouble finding a lender to qualify them.
Most lenders raised their credit score requirements and other credit/income standards which are called lender overlays. Most lenders have raised minimum credit score requirements to 660 to 680 FICO right after the COVID-19 pandemic. Lenders raised minimum credit score requirements to 640 to 680 FICO on VA loans. This holds true even if the VA does not mandate a minimum credit score requirement. The great news is Gustan Cho Associates Mortgage Group has no lender overlays on government and conventional loans during the coronavirus pandemic.
In this article, we will discuss and cover Applying For A Mortgage During The COVID-19 Pandemic.
Hurdles With Applying For A Mortgage During The COVID-19 Pandemic On Non-QM Loans
As we mentioned earlier, there are hurdles for borrowers who need a specialty mortgage program during the coronavirus pandemic. Non-QM loans are one of the most popular loan programs. Non-QM mortgages were shut down for the past three months. GCA Mortgage Group just reopened Non-QM lending in the past two weeks. However, credit and debt to income ratio standards are now higher than prior to the pandemic. Prior to the pandemic, we had non-QM loans for borrowers with credit scores down to 500 FICO. However, borrowers need at least a 680 credit score to qualify for Non-QM mortgages. Prior to the pandemic, there were 10% down payment non-QM mortgage programs. Now, the minimum down payment required on Non-QM loans is 20%. If borrowers want the best mortgage rates on Non-QM loans, they need at least a 30% down payment and credit scores north of 740 FICO. We expect more lenient lending guidelines on Non-QM loans in the weeks and months to come. There is no mandatory waiting period after bankruptcy and foreclosure with Non-QM mortgages. There are no maximum loan limits. There is no private mortgage insurance required on Non-QM loans.
The CARES Act Created Uncertainty In The Mortgage Bond Markets
Included in the CARES Act was the right for unemployed homeowners to be eligible for forbearance on federally-backed mortgages. What this means is any homeowner with an FHA, VA, USDA, Fannie Mae, Freddie Mac mortgage can be eligible for mortgage forbearance for up to one year. What this means is homeowners do not have to make any payments for a certain period of time up to one year. However, after the forbearance period is over, the borrower needs to make all payments.
Lenders can spread out mortgage payments over a period of time to make it affordable. Forbearance is not forgiveness. All missed payments, including escrow shortage, needs to be paid to the lender. The issue here is mortgage servicers are still on the hook in paying the investor. This holds true even though borrowers are not making mortgage payments to mortgage servicers. The coronavirus pandemic devastated the U.S. economy. Over 41 million Americans filed unemployment claims. 41 million Americans are one-quarter of the U.S. workforce. Without a federal bailout, many mortgage servicers are expected to shut their doors and/or file bankruptcy. This has created a panic in the secondary mortgage bond markets.
Investors currently have no appetite in buying mortgages from borrowers with under 700 credit scores. There is no liquidity in the secondary mortgage bond market. Lenders across the board have tightened their lending overlays on government and conventional loans. Lenders instruct mortgage underwriters to be super careful and anal when underwriting a loan. Mortgage underwriters are ultra-careful when underwriting mortgages. It takes twice as long to underwrite a file during the coronavirus pandemic due to fear the loan may not be able to sell on the secondary market after it funds.
If the secondary mortgage bond market does not purchase a loan after it funds, lenders are stuck with the loan for the duration of the 30-year term. Or they need to sell it as a scratch and dent mortgage at a huge discount. This frightens the lender. This is the reason why lenders are instructing mortgage underwriters to be super careful when underwriting. It normally takes 45 to 60 days to close a mortgage during the COVID-19 pandemic. Prior to the pandemic, most loans closed in 30 days or less.
Issues With Lenders When Applying For A Mortgage During The COVID-19 Pandemic
The coronavirus pandemic has created chaos in the mortgage markets. Most lenders have increased credit score requirements on government and conventional loans. Many lenders now require a 640 to 680 credit score on FHA, VA, USDA loans. Mortgage rates for borrowers with under 700 credit scores are high. Not only are the rates for borrowers with under 700 credit scores high, but they also need to pay discount points. This is because investors in the secondary mortgage bond market have no interest in buying mortgages with under 700 credit score borrowers. Mortgage rates are great for conventional loan borrowers with over 740 credit scores and a 25% down payment. However, investors of mortgage-backed securities do not want to take on the risk of buying MBS of borrowers under 700 FICO. Many lenders have suspended FHA and VA manual underwriting and FHA 203k loans.
The good news is GCA Mortgage Group has no lender overlays during the coronavirus pandemic. We still take mortgage applications on borrowers with under 620 credit scores, manual underwriting, non-QM loans, and other loan programs. Not all lenders have the same mortgage requirements. Many lenders have added additional overlays on their loan programs. Just because you do not qualify for an FHA, VA, USDA, Conventional loan with one lender does not mean you will not qualify for a mortgage with a different lender. If you have been turned down for a mortgage by a lender due to overlays, please contact us at GCA Mortgage Group at 262-716-8151 or text us for a faster response. Or email us at [email protected]