This ARTICLE On Qualifying For FHA Loans During Coronavirus Pandemic Was PUBLISHED On April 4th, 2020
The coronavirus pandemic has not just halted the US economy but has turned the mortgage industry upside down.
- FHA, VA, USDA, Fannie Mae, Freddie Mac has not changed any agency mortgage guidelines
- However, most lenders are facing major liquidity issues due to the coronavirus economic meltdown
- The Trump Administration $2 trillion bill may have helped American consumers but has devastated nonbank mortgage lenders
- Included in the $2 billion trillion stimulus bill is the law allowing lenders to give homeowners affected by the coronavirus a forbearance up to 12 months
- What this means is unemployed homeowners and/or other homeowners affected by the pandemic do not have to make mortgage, auto, and federal student loan payments
- However, mortgage lenders still need to make principal and interest payments to investors
- Lenders also need to pay property tax and insurance payments
- Over 25% of homeowners are expected to utilize the federally mandated forbearance program
- This can devastate the mortgage industry and trigger a financial crisis greater than the 2008 mortgage and real estate meltdown
In this article, we will discuss and cover Qualifying For FHA Loans During Coronavirus Pandemic.
How The Mortgage Industry Changed Overnight For The Worse
As mentioned in the earlier paragraph, HUD, VA, USDA, FANNIE MAE, FREDDIE MAC has not changed any agency mortgage guidelines.
- However, most mortgage lenders have completely changed their lender overlays
- Most lenders imposed strict lender overlays on government and conventional loans
- This holds true on FHA loans
- Qualifying For FHA Loans During Coronavirus Pandemic will be very tough for borrowers with credit scores under 680 FICO
- Most lenders have increased their minimum credit score requirements to over 640 FICO plus discount points
- For example, even though the minimum credit score requirements to qualify for a 3.5% down payment FHA loan is 580, most lenders are no longer taking any borrowers with under 640 credit scores
- A large percentage of lenders have increased the minimum credit score overlays to 660 to 680
The great news is Gustan Cho Associates still approves mortgage borrowers with credit scores under 620 FICO down to 500 credit scores on FHA and VA loans.
Qualifying For FHA Loans During Coronavirus Pandemic And Changes In Lender Overlays
Included in the $2 trillion coronavirus stimulus is a law allowing homeowners to get a forbearance on their mortgage loans for six months and up to 12 months.
- What this means is homeowners affected by the coronavirus pandemic do not have to make their monthly mortgage payments
- Lenders cannot report the forbearance on consumer credit reports so it does not negatively impact homeowners’ credit
- However, mortgage services are still on the hook in making principal and interest payments to investors
- Servicers also need to make property tax and insurance payments
- This will crush lenders
- Over 25% of US homeowners are expected to take advantage of the government-mandated forbearance program
- FDIC banks can borrow the principal and interest payments as well as property tax and insurance payments from the Fed
- Unfortunately, this law does not apply for nonbank mortgage servicers
Nonbank mortgage servicers cannot borrow money from the Fed. This may lead to a flood of mortgage lenders going out of business and/or bankrupt.
Why Are Lenders Increasing Credit Score Requirements
The coronavirus pandemic had a devastating impact on the mortgage industry. The secondary market has dried up. Mortgage-backed securities (MBS) we free falling to record low levels where there was no demand for MBS anymore. The Federal Reserve Board stepped in and started buying billions of dollars in mortgage-backed securities. Unfortunately, the Central Bank buying a flood of MBS is not making a dent in the secondary mortgage markets. Non-QM mortgages are all suspended. Most non-QM lenders have gone out of business in a matter of days. Only two major non-QM lenders are left and they have suspended and halted operations until further notice. The secondary market sees no value for mortgages under 640 FICO. Most lenders implemented lender overlays on credit scores. It is a definite for borrowers with under 680 credit scores to pay discount points. The great news is Gustan Cho Associates is aggressively approving FHA and VA loans under 620 FICO and down to 500 credit scores. For example, one of our loan officers locked a VA loan with a 530 credit score with 2% points last week. Our mortgage rates on government and conventional loans are still competitive. Gustan Cho Associates is one of the very few lenders that can still approve mortgage loans with under 620 credit scores, manual underwriting, and FHA 203k loans. Most lenders have stopped doing manual underwriting, FHA 203k loans, and bad credit loans
For more information about the topic of this article or to get pre-approved for a mortgage, please contact us at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. Our team is available 7 days a week, evenings, weekends, and holidays.
