BREAKING NEWS: Mortgage Underwriting 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
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
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. Gustan Cho Associates 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 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, including evenings, weekends, and holidays.
