Coronavirus strikes the mortgage industry! In the past few weeks we are getting daily emails about program changes and programs disappearing. For those of us that were in the mortgage industry in 2008, it seems very similar. So what has changed?
The first changes were to non-QM lending (QM is qualified mortgages). Basically many non-QM programs disappeared overnight. There were many investors that offered bank statement loans, higher debt-ratio loans and lower credit score loans. Those were the first things to change. Jumbo loans also had many changes. There were many banks that pulled out of jumbo lending as they were concerned about business failing and homes going into foreclosure. The loans that are still there have tighter qualifying than before. Stricter ratios, higher credit scores are just some of the changes. Cash out refinances are harder to do for those programs – if you can still do them. Interest rates also jumped for many of the programs that were left – partly to slow down new mortgages.
The next big change came to FHA mortgages. Many banks increased their minimum credit score for FHA loans. We had been able to do loans for those with credit scores down to 580 in many cases. Now many lenders want a minimum of 640, maybe even 660 for FHA loans. There are still wholesale brokers that will go down to 580 but the interest rates are going to be higher.
There were changes to appraisals – Fannie Mae, Freddie Mac, VA and FHAÂ – in many cases we can now do drive by or exterior appraisals. This allows appraisers to avoid going into homes so it’s safer for them.
There were some lenders (mostly non-QM lenders) that halted operations for two weeks or more. Angel Oak shut down for two weeks, Citadel Servicing shut down for 30 days. Other lenders did the same thing. Their reasoning was the uncertainty in the market. It was getting harder to evaluate credit risk.
There are other changes that affect buyers and sellers. Open houses are done for now. Title companies are still closing loans but they really only want the people signing docs to be there. Buyers are worried about being laid off. Sellers are worried about people seeing their homes and infecting them with Covid-19. Real estate agents are conducting more remote house tours. Interest rates vary depending on what you are doing and what your credit score is.
How will this all play out? No one knows for sure – mainly because no one knows how long this will continue! Interest rates should stay low. If this continues too long, it may bring more homes to the market as sellers may want to sell as they are afraid of losing their homes. For now, rates are great, home prices are great – depending on your situation, it may be a great time to think about buying!
Leslie Vanderwerf, NMLS ID#335509, AMEC Home Loans, An Equal Housing Lender, NMLS#150953 – Email – Website
