With COVID-19 making it incredibly difficult to buy a home, or even to get a mortgage, home buyers and homeowners trying to refinance their mortgage have something new to keep them awake at night.
In response to increased risk to lenders from the coronavirus, in mid-April, JPMorgan Chase raised standards for mortgages and stopped approving mortgages with down payments lower than 20%. It also increased its minimum FICO credit score to 700.
Lenders Raise Scores
Flagstar raised its minimum credit score for new Federal Housing Administration (FHA), Veterans Affairs (VA), and U.S. Department of Agriculture (USDA) purchase loans to 680. For cash-out refinances, the bank now requires that borrowers have at least a minimum credit score of 700.
US Bank and Wells Fargo both raised their minimum credit score to 680 for FHA, VA, and USDA loans, and 640 for conventional loans. LoanDepot requires 620 minimum FICO score for VA and FHA loans and a higher score, 660+, for cash-out or streamline refinancing. Now, the bank requires borrowers to have a minimum FICO score of 700 with a maximum debt-to-income (DTI) ratio of 43% when any funds used for closing costs or down payment are not borrower’s funds or gift funds, according to HousingWire.
Fannie Mae and Freddie Mac are adding to the new hurdles facing borrowers by asking lenders to take additional steps to verify employment status. Instead of verbal verification, lenders may obtain an email directly from the employer’s work email address that identifies the name and title of the verifier and the borrower’s name and current employment, a year-to-date pay stub from the period that immediately precedes the note date. When a borrower is using self-employment income to qualify, the lender must verify the existence of the borrower’s business within 120 calendar days before the note date from a third party, such as a CPA, regulatory agency, or the applicable licensing bureau, if possible.
Homeowners Rush to Refinance
With millions of breadwinners out of work and unemployment payments delayed, a surge of applications for home equity loans and lines of credit jumped 30% or more from a year earlier in recent weeks before stay-at-home orders cut application volumes.
Bank of America significantly tightened its standards for loans to homeowners wanting to borrow against their equity, ratcheting up an internal gauge that measures market conditions from the company’s lowest level to its highest. Its minimal credit score is now 720, up from 660.
Wells Fargo cut the maximum amount homeowners can borrow and reduced how much the bank will lend relative to a property’s value. The bank is applying stingier valuations to homes due to a lack of inspections and appraisals resulting from the pandemic.
Mortgage Credit Supply is Low
With mortgage rates at a historically low level and applications to refinance exploding, the Mortgage Bankers Association reported that the supply of available mortgage credit fell 16% in March, reaching the lowest level it has been since June of 2015.
“Mortgage credit supply decreased 16% in March to the lowest level since June 2015, with declines in availability across all loan types. 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,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting.
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