BREAKING NEWS: VA Loans During Coronavirus Pandemic Mortgage Crisis
The US economy is at a standstill as we speak due to the coronavirus pandemic that hit the nation.
- Prior to the pandemic, the US economy was the strongest it has been in the history of the United States
- Unemployment hit an all-time historic low at less than 3.5%
- The Dow Jones Industrial Average hit an all-time high
- The Dow Jones hit 29,000 in February 2020 which was a historic high
- Most Americans 401k’s were up more than 50% since President Trump took office
- Both HUD and the Federal Housing Finance Agency (FHFA) increased FHA and Conventional Loan Limits for the past four years due to increasing home prices
- 2020 housing market forecast was stronger than ever
- The strong economy brought more home buyers to the housing market than the inventory of homes
- Then the coronavirus outbreak hit home
- The economy went from being super strong to an economic meltdown literally overnight
- Most state governors ordered all non-essential businesses such as bars and restaurants closed
- The stock markets not only entered correction territory but went into bear market territory
- A market correction is when the stock market drops 10% of its recent highs
- The stock market enters bear market territory when it drops 20% or more
- The Dow Jones Industrial Average dropped as low as 18,000 in the past couple of weeks
- Just in February 2020, the Dow was as high as 29,000
- With the economic meltdown came another mortgage crisis
- The coronavirus pandemic crisis brought major chaos in the mortgage markets affecting government, conventional, and non-QM loans
In this breaking news article, we will discuss and cover Qualifying For FHA Loans During Coronavirus Pandemic.
Agency Guidelines Versus Lender Overlays On VA Loans During Coronavirus Pandemic
As a right-hand rule, when the stock market drops, the yield on the 10-year treasuries also drops.
- With the combination of the stock market plummeting and the yield on the 10-year treasury tanking, mortgage rates drop
- Mortgage rates are at an all-time historic low on 30-year fixed-rate mortgages
- However, lenders are increasing rates due to liquidity issues on the secondary mortgage bond markets
- Investors are not buying mortgage-backed securities (MBS) due to worries about future foreclosures and risk
- Borrowers with higher credit scores, large down payments, and lower debt to income ratios are not affected
- However, most lenders implemented lender overlays on VA loans
- For example, the VA does not have a minimum credit score requirement or a maximum debt to income ratio cap
However, many lenders implemented new credit score requirements of 640 to 680 FICO - This holds true even though the VA does not mandate a minimum credit score requirement as long as the borrower can get an approve/eligible per automated underwriting system (AUS)
- Debt to income ratios got reduced to 45% to 50% DTI even though the VA does not have a maximum DTI cap as long as the borrower can get an AUS approval
However, lower credit score borrowers will have a tough time not only getting good mortgage rates but qualifying for VA loans.
Challenges In Qualifying For VA Loans With Lower Credit Scores
The coronavirus pandemic has hit the mortgage industry hard. This holds true on government-backed loans, especially VA mortgages:
- Government agencies (FHA, VA, USDA, Fannie Mae, Freddie Mac) has not made any changes to agency lending guidelines
- However, most lenders have increased lending guidelines due to secondary bond market liquidity issues due to the coronavirus economic meltdown
- President Donald Trump signed the $2 trillion coronavirus stimulus bill to help unemployed homeowners get a mortgage forbearance
- However, the mortgage forbearance is crushing nonbank mortgage lenders
- Included in the $2 billion trillion coronavirus stimulus bill is the law allowing mortgage servicers to give homeowners affected by the economic collapse a forbearance between six and twelve months
- Unemployed homeowners and/or other homeowners affected by the economy due to the coronavirus pandemic are eligible for forbearance on mortgage, auto, and federal student loan payments
- Mortgage lenders are still on the hook to make principal and interest payments to investors as well as property taxes and homeowners insurance for borrowers with escrow accounts
- Over 25% of homeowners are expected to utilize the federally mandated forbearance program
- With no mortgage payments coming in to pay investors, the mortgage industry will get hurt more than the 2008 mortgage and real estate meltdown
- This can cause countless lenders to go out of business
Due to the halt of investors buying mortgages of lower credit score borrowers, lenders are increasing credit score requirements and charging hefty points for borrowers with under 680 credit scores. This includes government loans including VA loans which are backed and insured by the government.
Hurdles On VA Loans During Coronavirus Pandemic Mortgage Crisis
Many lenders are coming up with lender overlays on VA loans during coronavirus pandemic mortgage crisis. This is due to the illiquid secondary mortgage bond market. Investors have no appetite in purchased mortgage-backed bonds from borrowers with under 640 credit scores. This is why lenders are increasing credit score requirements and charging discount points. Furthermore, most lenders have lowered their debt to income ratio caps to 41% to 45%. The VA does not have a minimum credit score requirement or a maximum debt to income ratio cap. The great news is Gustan Cho Associates Mortgage Group has investors with no lender overlays. We do not have a minimum credit score or maximum debt to income ratio cap on VA mortgages. If you have been told that you do not qualify for a VA loan from a lender, please contact 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, evenings, weekends, and holidays.
VA Agency Mortgage Guidelines
VA loans are the best loan program in the U.S. However, only active and/or retired members of the U.S. Armed Services with a Certificate of Eligibility (CEO) are eligible to qualify for VA mortgages. Surviving spouses of veterans who meet the VA agency guidelines are also eligible. Here are the basic VA agency mortgage guidelines:
- 100% financing with no down payment required on home purchases
- Up to 4% sellers concessions allowed by sellers to use it for closing costs
- There are no minimum credit score requirements on VA loans
- There are no maximum debt to income ratio caps on VA loans
- There is no maximum loan limits
- There is no mortgage insurance required
- The VA funding fee can be rolled into the balance of the VA mortgage
