Why It Is Harder To Qualify For A Mortgage During Pandemic
Why It Is Harder To Qualify For A Mortgage: The U.S. economy was booming prior to the coronavirus pandemic.
- The housing market was the strongest than ever in the history of the United States
- HUD and the Federal Housing Finance Agency (FHFA) has increased FHA and Conventional loan limits for the past four years in a row due to increasing home prices
- HUD set the FHA loan limits at $336,760 for 2020
- The FHFA increased conforming loan limits to $510,400 for 2020
- With the booming economy, the housing and mortgage market was booming
- Many analysts and economists were forecasting the best year ever for the housing and mortgage industry in 2020
- There was more demand for homes than in inventory. Homebuilders were selling out of homes prior to getting permits approved
In this article, we will discuss and cover Why It Is Harder To Qualify For A Mortgage During Pandemic When Mortgage Rates are so low.
Why It Is Harder To Qualify For A Mortgage When Rates Are So Low
The U.S. economy was in a bull market for the past 11 years before the coronavirus pandemic.
- There was no sign of any potential recession and/or housing correction
- In February 2020, the Dow Jones Industrial Average hit 29,000
- Most Americans had 401ks that appreciated over 55% since President Trump took office in January 2017
- Inflation was at low levels and unemployment rates hit under 3.5% which is a historic low
- Mortgage rates were plummeting where lenders had record-breaking quarter after quarter
- Alternative mortgage loan programs such as non-QM and bank statement loans for self-employed borrowers added fuel to the fire by creating a stronger housing market
- Then the coronavirus hit the U.S. crashing the economy
- Never in history did a pandemic destroyed the U.S. economy in such a short period of time
- All governors issued a state of emergency by ordering stay at home orders
- Millions of Americans are out of work and have no certainty of when they are going to return
- Many furloughed workers are not even sure they have a job to return to
There are countless protests in all parts of Americans protesting for the government to allow the reopening of state government.
Shutdown Of Economy Affecting Unemployment
Businesses who had physical contact with people were ordered closed.
- Over 26 million Americans filed unemployment claims in the past 4 weeks
- The unemployment numbers are expected to rise in the coming weeks
- Millions of businesses have been closed
- The longer the economy is shut down, the longer it will take for the economy to recover
- Many closed businesses are not expected to reopen
- The once-booming housing market came crashing down
- Many wonders Why It Is Harder To Qualify For A Mortgage during the coronavirus pandemic when mortgage rates are at historic lows
In this breaking news article, we will discuss and cover Why It Is Harder To Qualify For A Mortgage During Pandemic when mortgage rates are at historic lows.
Why It Is Harder To Qualify For A Mortgage During Pandemic When Rates Are At Historic Lows
The coronavirus pandemic sent the stock marketing plummeting over 40% in just a period of a few weeks.
- The market has recovered somewhat but we are still down 20% of its all-time highs in February 2020
- The stock market crash sent the yield on the 10-year U.S. treasuries below 1.0%
- This plummeted mortgage rates to all-time lows
- There are millions of homeowners that can benefit from today’s low mortgage rates and save thousands of dollars over the course of their loan
- However, both purchase and refinance mortgages are more difficult to get due to the chaos in the secondary mortgage bond markets
- This is due to the impact of the pandemic on the economy and employment
- The housing market has taken its toll from the economic impact of the pandemic
- Many homebuyers have suspended the home buying process due to the concerns of their employment
- However, there are still home buyers who need to purchase homes even during the pandemic
There are millions of homeowners wanting to save money and refinance their mortgages as well. However, it is becoming harder and harder to qualify for a mortgage for borrowers with less than perfect credit.
What Analysts And Economists Are Saying
The coronavirus pandemic turned the mortgage industry into major chaos.
- Credit availability for mortgages fell to its lowest level in March 2020
- The main reason for this is due to a substantial drop in liquidity
- Secondary mortgage bond market investors in Jumbo mortgage-backed securities (MBS) pulled back
- Most non-QM lenders have halted operations until further notice
- Several non-QM lenders have closed their doors completely and will not return to reopen operations
- Other non-QM lenders filed for bankruptcy
There was a reduction in the availability of loans with lower credit scores and higher LTV ratios, and the largest pullback came from the jumbo and non-QM space. Non-QM is loans that fall outside the criteria for government purchases. Lenders are making credit criteria changes to account for the increased likelihood of forbearance and defaults, as well as higher costs.
Most lenders have increased their lending guidelines, called overlays, on all their loan programs.
- The good news is Gustan Cho Associates Mortgage Group has not imposed any lender overlays on government and conventional loans
- This is due to the illiquidity in the secondary mortgage bond market
- The secondary mortgage bond market investors have no appetite for borrowers with under 680 credit scores
GCA Mortgage Group does not see this as a long term thing. Lending requirements are expected to lighten up once the mortgage markets stabilize.
Why It Is Harder To Qualify For A Mortgage At Big Banks
The Nation’s largest mortgage company, Wells Fargo, has halted purchasing nonconforming loans from their correspondent lender partners.
- Wells Fargo is also reducing its own inhouse loan originations of nonconforming and high-balance purchase and refinance mortgages
- JP Morgan Chase is no longer accepting any government loans
- Chase Mortgage announced they will only accept conventional loans for borrowers with at least 700 credit scores and 20% down payment
JP Mortgage Chase made the following announcement:
Due to the economic uncertainty, we are making temporary changes that will allow us to more closely focus on serving our existing customers.
Chase Mortgage is not the only large lender that has put strict new lender overlays on residential mortgages. Many small, medium-sized, and large nonbank lenders have either eliminated and/or made changes to their mortgage loan programs. Many lenders have suspended doing manual underwriting on VA and FHA loans. Other lenders have increased their credit score requirements to 660 to 680 FICO across the board. The good news is that Gustan Cho Associates has made no changes nor have increased lender overlays on its mortgage programs.
Lenders Worried About Liquidity And Potential Foreclosure
Over 30 million Americans filed for unemployment claims in the past 5 weeks.
- Unemployment claims are supposed to increase in the weeks to come
- The once 3.5% unemployment rate just a few weeks ago may skyrocket to over 20%
- With unemployment rates skyrocketing, how will unemployed homeowners able to pay their minimum monthly mortgage payments?
- How many foreclosures will hit the housing market?
- Will we have another housing market crash?
- Are we going to have a repeat of the 2008 housing crisis?
- Or is it going to be worse?
- Lenders are worried about the housing market
- As of today, there are no answers to the above questions
- Everything is dependent on how fast the economy will recover after the government reopens states
Massimo Ressa of Gustan Cho Associates said the following:
Mortgage servicers are being besieged by calls from borrowers requesting the government’s forbearance program, wherein borrowers can miss up to a year’s worth of payments which will then have to be paid later. The servicing industry has been begging the Federal Reserve for some kind of liquidity facility to help them make their payments to bondholders, but so far only Ginnie Mae has done that for FHA loans. The lack of liquidity is putting the whole servicing industry at risk and adding to a growing list of reasons to tighten lending. As for liquidity in overall lending, the Fed did step in and is now buying billions of dollars’ worth of conforming mortgage-backed bonds, but there is much less liquidity for other types of lending. Investors simply don’t want to take that risk. No one really wants to hear this, but the tightening is very logical in this environment. Sure, investors will certainly get their money back at some point. But how long will that take, how much of their business will be affected, and what will the interruptions/headaches look like? Several nonbank lenders are also raising minimum credit scores for FHA loans, which are generally used by borrowers with lower scores and lower down payments. The FHA itself has not changed its guidelines. Adding to the difficulty in originating mortgages for both new home purchases and refinances are changes to underwriting guidelines by Fannie Mae and Freddie Mac, who, along with Ginnie Mae, purchase the majority of mortgages today. They are requiring that all income and asset documentation for borrowers be dated within 60 days of the initial application, compared with the 120-day standard time frame. This is likely because people are losing jobs and income at an unprecedented rate. For self-employed applicants, lenders must verify the existence of the borrower’s business within 120 days. That has now shrunk to just 10 days.
How Long Will It Take To Get Back To Normalcy
The U.S. economy was the strongest it has ever been in history prior to the coronavirus pandemic. The housing market was the strongest it has been in the history of the United States. Then the pandemic hit crashing the economy overnight.
Given how difficult the whole mortgage process now is, with title companies closed or working remotely and notaries and appraisers unable to do their work in person, the time horizon for closing a loan is only getting longer, not shorter. Typically, following natural disasters, they will do just the opposite, extending the time frame to 180 days before a lender would have to re-verify a borrower’s income and assets. Just two months ago, before the pandemic had struck the U.S. widely, mortgage rates were near record lows, and refinance demand was booming. Applications jumped dramatically. But now even some of those applications will be rejected either due to timing issues or because borrowers no longer qualify. For homebuyers, and there are still some out there, the timing of locking in a mortgage rate and then getting all the way through to closing on a home has lengthened dramatically, putting the availability of that mortgage at risk. Some builders, like Lennar and Taylor Morrison, are experimenting with drive-through closings, keeping with social distancing while still selling homes. It depends on what type of mortgage you are looking for in terms of difficulty. A conforming mortgage for a home purchase is probably the ‘easiest,’ while a jumbo refi is probably the ‘hardest’ to get in the current environment.
There is still hope to qualify for a mortgage with lower credit scores and bad credit. Gustan Cho Associates has not imposed any lender overlays during the coronavirus pandemic. GCA Mortgage Group will still approve borrowers with under 620 credit scores as well as manual underwriting and FHA 203k Loans.
Qualifying For A Mortgage With Under 680 FICO With A Lender With No Overlays
Borrowers with under 680 credit scores are finding it difficult to find a lender to do their mortgage. Also, borrowers with under 680 credit scores are getting quoted higher mortgage rates plus discount points. Many wonder why they are getting high mortgage rates when rates are at historic lows. This is because there is no demand for lower credit score borrowers on the secondary mortgage bond market. Borrowers with over 740 credit scores and larger down payment can still get stellar low mortgage rates. Mortgage rates today are 3.26% for prime borrowers with 740 FICO and 25% down payment. The great news is Gustan Cho Associates has no lender overlays and can help lower credit score borrowers with less than perfect credit. To qualify with a five-star national mortgage company, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at [email protected] The Team at GCA Mortgage Group is available 7 days a week, evenings, weekends, and holidays.