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Last updated on December 22nd, 2020 at 05:21 pm
Mortgage rates have fallen back to recent lows.
Though homebuyers aren’t exactly banging on the doors during the spring housing market amid the coronavirus crisis, there are some hardy ones out there within the hunt.
And there are still many current homeowners who could economize through a refinance.
Unfortunately, both sorts of loans are now harder to urge because the mortgage market is badly battered on several fronts thanks to the impacts of the pandemic on the economy and employment.
Mortgage credit availability in March fell to rock bottom level in five years, consistent with a survey by the Mortgage Bankers Association.
Lenders cite an outsized drop by liquidity, as investors in jumbo mortgage-backed bonds pull back. Jumbo loans are those valued above the conforming loan limit of $510,400.
“There was a discount within the availability of loans with lower credit scores and better LTV ratios, and therefore the largest pullback came from the jumbo and non-QM space,” said Joel Kan, an MBA economist.
Non-QM is a loan that falls outside the standards for state purchases. “Lenders are making credit criteria changes to account for the increased likelihood of forbearance and defaults, also as higher costs.”
Early last week, Wells Fargo, the nation’s largest mortgage lender by volume, temporarily suspended its purchasing of non-conforming, loans from correspondent sellers, “due to unprecedented market conditions,” consistent with Tom Goyda, a corporation spokesman.
It is also scaling back its own retail originations of non-conforming refinances and conforming high-balance loans.
“These difficult business decisions reflect efforts to prioritize how we serve customers and maintain prudent record discipline,” said Goyda.
New Guidelines
JP Morgan Chase, another of the nation’s largest mortgage lenders, changed its underwriting guidelines. As of in the week, new mortgage applicants will need a minimum FICO credit score of 700 and can need to make a minimum of a 20% deposit on the house.
“Due to the economic uncertainty, we are making temporary changes which will allow us to specialize in serving our existing customers more closely,” said Amy Bonitatibus, Chief Marketing Officer for Chase Home Lending.
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 can then need to be paid later.
The servicing industry has been begging the Federal Reserve System for a few quite liquidity facilities to assist them in making their payments to bondholders.
Still, thus far, only Ginnie Mae has done that for FHA loans. The shortage of liquidity is putting the entire servicing industry in danger and adding to a growing list of reasons to tighten lending.
As for liquidity in overall lending, the Federal Reserve System did step in and is now buying billions of dollars’ worth of conforming mortgage-backed bonds, but there’s much less liquidity for other sorts of lending. Investors simply don’t want to require that risk.
As for liquidity in overall lending, the Federal Reserve System did step in and is now buying billions of dollars’ worth of conforming mortgage-backed bonds, but there’s much less liquidity for other sorts of lending. Investors simply don’t want to require that risk.
Several non-bank lenders also are raising minimum credit scores for FHA loans, which are generally employed by borrowers with lower scores and lower down payments. FHA itself has not changed its guidelines.
Adding to the problem in originating mortgages for both new home purchases and refinances are changes to underwriting guidelines by the Federal National Mortgage Association and Federal Home Loan Mortgage Corporation, who, alongside Ginnie Mae, purchase the bulk of mortgages today.
They’re requiring that each one income and asset documentation for borrowers be dated within 60 days of the initial application, compared with the 120-day civil 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 only ten days.
Longer Time Horizon
Given how difficult the entire mortgage process now’s, with title companies closed or working remotely and notaries and appraisers unable to try to their add person, the time horizon for closing a loan is merely getting longer, not shorter.
Typically, following natural disasters, they’re going to do exactly the other, extending the time-frame to 180 days before a lender would need 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 refinanced demand was booming. Applications jumped dramatically.
But now even a number of those applications are going to be rejected either thanks to timing issues or because borrowers not qualify.
For homebuyers, and there are still some out there, the timing of locking during a mortgage rate than getting all the way through to closing on a home has lengthened dramatically, putting the supply of that mortgage in danger.
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 sort of mortgage you’re trying to find in terms of difficulty,” said Guy Cecala, CEO of Inside Mortgage Finance.
“A conforming mortgage for a home purchase is perhaps the “easiest,” while a jumbo refi is perhaps the “hardest” to urge within the current environment.”
Reference Source: CNBC
