Mortgage Underwriting During The Covid-19 Pandemic

BREAKING NEWS: Mortgage Underwriting During The Covid-19 Pandemic

What mortgage Underwriting looks like during the Covid-19 pandemic

Mortgage Underwriting During The Covid-19 Pandemic is more scrutinized than it ever used to be.

  • Lenders are paranoid about being able to sell their originate and fund after closing
  • The mortgage industry is in chaos due to the coronavirus pandemic
  • The once strong mortgage market is now uncertain on the liquidity of borrowers with less than perfect credit
  • The pandemic frightened investors of the secondary mortgage bond market
  • Buyers of mortgage-backed securities (MBS) have no appetite in buying mortgages of borrowers with under 700 credit scores
  • This is due to liquidity issues
  • Prime borrowers have no issues with getting the best mortgage rates and terms
  • Prime borrowers are those with 740 credit scores and 20% equity
  • However, any borrower with 700 FICO will get very high mortgage rates
  • In many cases, under 700 credit score borrowers will need to pay discount points along with high rates due to the chaos in the secondary mortgage bond markets

In this article, we will discuss and cover Mortgage Underwriting During The Covid-19 Pandemic.

Forbearance Included In The CARES Act

Included in the CARES Act was the right for any homeowner affected by the coronavirus pandemic to be able to get forbearance up to one year.

  • What this means is any homeowner who has a federally-backed mortgage can get to skip their mortgage payments up to one year
  • This has shaken the mortgage industry
  • Mortgage servicers still need to make mortgage payments to investors even though no payments are made by borrowers
  • With the numbers of forbearance requests, this can bankrupt countless servicers if the federal government does not bail out mortgage servicers
  • Over 41 million Americans have filed unemployment claims in the past nine weeks
  • The number of forbearance requests is climbing to record levels
  • Lenders view borrowers with lower credit scores as higher risk borrowers
  • This is why there is no market in the secondary mortgage bond market for borrowers with under 700 credit scores
  • This is another reason why lenders are paying closer attention when underwriting mortgage loans
  • Lenders are very nervous in originating and closing mortgages and the loan does not get bought on the secondary mortgage bond market

Mortgage lenders are terrified once they close the mortgage, the borrower will not able to pay their mortgage payment. This is why mortgage underwriting during the COVID-19 Pandemic crisis is being scrutinized like never before.

Increased Lender Overlays In Mortgage Underwriting During The Covid-19 Pandemic

Why mortgage lenders' overlays have increased during the Covid-19 pandemic

Many lenders have increased credit score requirements due to the COVID-19 pandemic mortgage crisis:

  • Many lenders have no increased minimum credit score requirements to 660 to 680 FICO when the minimum credit score requirement on a 3.5% down payment FHA loan is 580 FICO
  • The VA has no minimum credit score requirements
  • However, many lenders have lender overlays on credit scores on VA loans to 660 to 680 FICO
  • This holds true even though the VA has no minimum credit score requirements
  • Many lenders are ordering all of their mortgage underwriters to scrutinize all the loans they are underwriting
  • Mortgage Underwriting During The Covid-19 Pandemic crisis is much tedious and takes longer than usual

Mortgage underwriters are paranoid to make sure there is no chance of the loans they are underwriting of not being sold on the secondary market.

Changes In Mortgage Underwriting During The Covid-19 Pandemic

There are no changes in agency mortgage guidelines.

  • FHA, VA, USDA, Fannie Mae, Freddie Mac Agency Guidelines remain the same
  • The 3.5% down payment requirement to qualify for an FHA loan has not changed per HUD Guidelines
  • However, most lenders have increased the minimum credit score requirements to 660 to 680 FICO as part of their lender overlays
  • The VA does not have a minimum credit score requirements
  • The VA has not changed its guidelines in not having a minimum credit score requirement on VA loans
  • However, most lenders have increased credit score requirements to 640 to 680 FICO on VA loans
  • This holds true even though the VA does not mandate a minimum credit score requirement
  • More so, mortgage rates are very high for any borrowers with under 700 credit scores
  • Many lenders are not just charging high mortgage rates for borrowers under 700 credit scores, but they are also charging discount points
  • For example, JP Morgan Chase is only accepting conventional mortgage borrowers with at least 700 FICO and 20% down payment
  • Chase Mortgage is not accepting any government loans at this current time during the pandemic

There is no market for borrowers under 700 credit scores in the secondary mortgage bond market until further notice. Many experts and industry professionals do expert for the mortgage market to stabilize in the weeks and months to come for non-prime borrowers.

Issues And Obstacles In Mortgage Underwriting During The Covid-19 Pandemic

What are the problems and obstacles in guaranteeing mortgages during the Covid-19 pandemic

The mortgage business is adapting during the pandemic.

  • However, turnaround times are much longer
  • Mortgage underwriters are taking more time underwriting files
  • Verification of employment is done until the date of the closing
  • Mortgage underwriters are scrutinizing bank statements up to the day of the closing
  • Loan officers are noticing petty conditions being asked by mortgage underwriters
  • Many underwriters want to be safe than sorry
  • One or two loans that cannot be sold on the secondary mortgage bond market due to an underwriter mistake may cost them their jobs
  • The ability to repay is always on the underwriter’s mind when underwriting the loan
  • If the borrower takes up on the CARES Act forbearance program, it could be devastating for the lender
  • The mortgage process is much longer during the pandemic
  • Most closings will take 45 to 60 days instead of 60 days
  • Everything takes longer: From appraisal to processing, to underwriting

The mortgage process should lighten up as the liquidity issues on the secondary mortgage bond market stabilize. However, many borrowers and loan officers are getting frustrated due to mortgage underwriters being such sticklers during the pandemic.

Qualifying For A Mortgage With A Lender With No Overlays

The great news is Gustan Cho Associates Mortgage Group is accepting mortgage applications for borrowers under 620 FICO. GCA Mortgage Group has no lender overlays during the coronavirus pandemic. We have also reopened the Non-QM mortgage programs. Over 75% percent of our borrowers are folks who could not qualify due to lender overlays. Gustan Cho Associates is one of the very few national mortgage companies with no lender overlays on government and conventional loans. For more information about this topic or to qualify for a mortgage with a lender with no overlays, please call us at 262-716-8151 or text us for a faster response. Or email us at gcho@gustancho.com. The team at GCA Mortgage Group is available 7 days a week, including evenings, weekends, and holidays.

10 Comments
  1. Taryn Lee

    The issue is I have a short sale 30 months ago. It is a condo in La Quinta. My middle fico is 824. The home is paid off and the proceeds are to pay off a motor home we recently purchased and some other debts. I’m retired and my husband is a w2 employee with 13k per month in income but on short term disability and will return to work soon.

  2. Mary Scheuber

    Great article on mortgage underwriting by Gustan Cho Associates. The credit rating scores grew to become more vital than at any time in 2020 when dealing with loan companies. Not only ended. You guys are the best of the best when it comes to mortgage and real estate knowledge. 1yr discharge from chapter 7bk. Looking to purchase.

  3. Mary Sanchez

    Hi there – we are exploring options for buying a ~$950k home with ~10-15% down. Credit scores from 750-795.

  4. Brandon Thomas

    I’m currently looking for a lender on a 30 year conventional and am experiencing road blocks. Here are the issues:

    1) student loans (federal, consolidated), one current monthly IBR payment, not deferred. I was told by a lender this will have to change to amortize at 1% or 0.5, which would kill my DTI. Any options with Fannie Mae, etc. to use the monthly payment reported on the CR??

    2) I have an unpaid charge off from a 2015 repo on an auto loan I co-signed for. Amount is about $26k, no collection activity. It’s past the SOL, but will remain on my credit for two more years. I’ve been told underwriters will probably require pay before close, or at least will add 5% of the balance to my monthly pymts, which will also kill my DTI.

    My other credit factors are good. Steady job same place for 8 years, 700’s credit score, no other lates or collections. Looking to put down 5-10%.

    Is there any way to get a mortgage where I won’t have to pay the auto charge off, it won’t be factored into my DTI, and my Income Based Student Loan payment will be used?

    I live in Arkansas so don’t know if you guys would help me but would very much appreciate any help!

    Thanks!
    Brandon Thomas

  5. Melissa Gaynor

    I filed chapter 13 a year ago. I am currently going through a divorce and need to get financing to get my own place.

  6. Laurie McBride

    Good Afternoon ,

    So sorry to sound like a broken record I’m beyond frustrated so we have the auto-approve that don’t need to go to an underwriter but I can still not get a preapproval letter or anyone to answer back with what we need to do. All I need is a preapproval letter saying that we are pre-approved for the loan.

    Michelle transferred to another loan officer but he has no information on it.

    I just need an answer if I’m eligible what is the issue.

    1. Gustan Cho, NMLS 873293 says

      Laurie, I just spoke with Michelle McCue. Michelle will be calling you in a few minutes.

  7. Juan Castillo

    Hello, my name is Juan.

    I own a home with my girlfriend. Due to a job loss I’ve been in forbearance for some time. Things are definitely much better now. However, my credit has really taking a hit as I had to ride my credit cards out/live off them for a little while. Can you help me decide what the best move moving forward is? We probably have 100k in home equity.

  8. Alexis Cooper

    Alexis Cooper
    Tue, Dec 15, 2020, 2:46 PM
    to Alex, Alexa, Alyssa, Angie, Charetta, Chuck, Crystal, Dale, Dawn, Dora, Eddie, Finn, Fiona, Gianna, me, Jammi, Jennifer, Jennifer, Jessica, Joe, Kathleen, Kristen, Linda, Maria, Mark, Michelle, Pat, Peter, Phil, Pierre, Raul, Ricky, Roger, Ryan, Samantha, Syed, Torri, Vincent, Massimo

    Hi everyone,
    It is required by law that every employee who works in the following states completes a sexual harassment training program (CT, CA, DE, IL, NY, and ME). I have enrolled Loan Cabin in an online training program through ADP. Please follow the steps below to register your account and complete your training course: To get started, register here: https://pro.upnetic.com/class/79516/
    Once you create an account, your username will display on the screen. To begin, click on the blue “Start Training” button.
    If you need to log out before completing the training, you will be able to log back on pro.upnetic.com and pick up where you left off.
    If you need technical support for accessing the training platform , please visit the support page or email the BizPro support desk at support@upnetic.com
    *Please note that this training course is mandatory by law and every employee needs to complete this training by the end of the year.
    The deadline is December 31st, 2020. Please complete this training by the end of next week (12/25) and email me your certificate when completed.

    Thank you

    Alexis Cooper | HR Manager | Loan Cabin, Inc.

    1910 S. Highland Avenue, Suite 300 Lombard, IL 60148

  9. Tatiana Savenelli

    hello, we are currently looking to purchase the first home we have credit scores of around 595..I am a vet as well I have been talking with a few agents and it just seems like everyone blows us off I read that you could help so here we are. thank you upfront for your time

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