Mortgage rates may have dropped, but it’s now a lot harder to get a mortgage or even refinance one due to the negative impact the coronavirus pandemic is having on the economy and employment.
Mortgage credit availability in March fell to the lowest level in five years, according to a survey by the Mortgage Bankers Association.
“Lenders cite a large drop in liquidity, as investors in jumbo mortgage-backed bonds pull back. Jumbo loans are those valued above the conforming loan limit of $510,400,” CNBC reported.
The share of prospective homebuyers with credit scores of less than 720 dropped by five percentage points between January and March, according to data from LendingTree. If you have a credit score below 720, it will be extremely difficult to get a mortgage.
Non-white, working-class, and lower-income borrowers will most likely bear the brunt of the fallout, said Alys Cohen, an attorney at the National Consumer Law Center, in an NBC News interview. “We may end up seeing a shuttering of credit in communities of color as a result of this crisis, rather than making judgments based on the individual merits of the borrower.”
Major lenders have announced major moves that make it harder to get a mortgage and refinance. “The large banks, including JPMorgan Chase, are moving significantly to looking at credit risk and looking at loan portfolios where they need to assess potential delinquencies and possible charge-offs,” Ken Leon, director of equity research at CFRA Research, told NBC News.
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Wells Fargo, the largest mortgage lender by volume in the U.S., for example, temporarily suspended its purchasing of nonconforming loans from correspondent sellers, “due to unprecedented market conditions,” according to Tom Goyda, a company spokesman.
“These difficult business decisions reflect efforts to prioritize how we serve customers and maintain prudent balance sheet discipline,” Goyda said.
JPMorgan Chase changed its underwriting guidelines. New mortgage applicants will need a minimum FICO credit score of 700 and will have to make at least a 20-percent down payment on the home, CNBC reported.
“Due to the economic uncertainty, we are making temporary changes that will allow us to more closely focus on serving our existing customers,” said Amy Bonitatibus, chief marketing officer for Chase Home Lending.
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The changes in the mortgage sector were expected.
“No one really wants to hear this, but the tightening is very logical in this environment,” said Matthew Graham, chief operating officer at Mortgage News Daily. “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?”
All is not lost. There are other options available. Guy Cecala, CEO of Inside Mortgage Finance, advised, “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.”