How has Covid19 Affected the Mortgage Industry? Can I get a Mortgage During the Coronavirus Pandemic?

2020 has been a crazy year – toilet paper shortages, social distancing, lockdowns and face masks.  Not to mention the global pandemic of an unprecedented nature that we have not seen in 100 years.  The Novel Coronavirus has changed the world in just a few months; wreaking havoc on healthcare systems and every industry from the oil industry to the retail industry and from the restaurant industry to the mortgage industry.

Since I am only an expert in the mortgage industry, I will focus this blog on how Covid19 and the Coronavirus has affected the mortgage industry and how mortgage borrowers can still get financing for their mortgage needs.

First and foremost the mortgage industry has been hugely impacted at this point by the pandemic and the American public needs to be aware that it is not business as usual in our industry.  Lenders are tightening their requirements, increasing minimum credit scores, increasing minimum down payments and requiring cash reserves in order to qualify.  Specialty programs for jumbo Loans, self-employed borrowers and investment loan products are not even being offered at this time for most lenders.  The scope has been lessened to the point where most mortgage borrowers are being turned down where normally they would of been approved just 2 months ago.

Does that mean there is no hope to buy a new home or refinance into historic low rates?  No of course not.  You just have to be educated when it comes to knowing where to shop for your next mortgage.  I am here to let everyone in on a little secret.  Most lenders are affected, but that does not mean all lenders are affected.

Interest rates are the biggest thing most borrowers are going to see a difference right now.  Interest rates should be much lower than they are now.  Much lower.  Once the global pandemic started and it forced us to shelter in place and closed nonessential businesses, investors across the board went into panic mode and ceased buying into an uncertain market.  This caused money to literally dry up.  Without this liquidity the day to day mortgage lenders could no long fund new loans and had to stop production.  Without the investors there is no money available.  Lenders combated this by increasing their rates to slow loan production and control their pipelines in hopes money would be soon available to continue on.  Other lenders were not going to risk their futures by allowing such low rates out the door and have no way to recoup their costs when selling to investors if rates went up sharply.  They would lose billions of dollars if a cure was found tomorrow and markets stabilized and rates corrected themselves.  Who would want to buy loans with low rates and no margins when I can go down the street to the next lender and buy up loans with higher rates and higher margins?

I have built relationships with dozens of wholesale mortgage lenders in the 15 years I have been doing this job.  In the last 2 months we have seen the full gambit – lenders price their rates high to slow production, lenders close their doors for good, lenders only allowing perfect borrowers with 20% down and lenders continue funding deals with great rates and mimimal changes.

So why is there a difference?  The short answer without getting too technical is direct lending to Fannie/Freddie/Ginnie and not.  In 2008 when the crash happened that led to the Great Recession, we saw large banks exit the mortgage industry.  There were too many regulations and risk that the large banks didn’t want to endure.  So rising in their place to gain 66% of the market was Non-Bank mortgage lenders.  These consist of large retail mortgage lenders such as Quicken Loans, Loan Depot, Mr. Cooper and Freedom Mortgage.  These lenders only do mortgage loans, so their money is tied to funding mortgage loans and selling them to investors to keep the cycle going.  Some of these lenders did have direct access to the agencies to sell their loans, but were either removed because of wrongdoing or sought other investors willing to pay more money for their loans.  Without being able to sell their loans, lenders in this category are stuck with no liquidity.  So the larger ones priced themselves out of the market and the smaller ones are facing bankruptcy unles the Gov’t intervenes – this maybe coming in the next few weeks, so we shall see.

Ok then I will go to my bank and get a mortgage.  Well good luck there – most large bank lenders are still not wanting to deal with the risk that the pandemic is bringing about – economic down turn, looming recession, skyrocketing unemployment, etc.  Most large banks are upping their requirements to get financing – 700-720 FICO scores, 20% down payments and 3-12 months of cash reserves.  They are only willing to gamble on the best loan files out there.

So the secret is finding a Goldilocks company to work with – one that is not too big, not too small, one that is just right. My suggestion is a local mortgage broker that has been doing business for years that has a large network of lenders and investors they have been doing business with.  Not to toot our own horn, but someone just like Wiser Lending.  We have relationships with investors that are direct sellers to the agencies ( Fannie/Freddie/Ginnie Mae) that haven’t gouged their rates, but rather are keeping them low to ensure our clients can still get the best deal possible.  They have not raised their requirements and are still allowing MOST loan products.  It is still tough to get the best deal on an investment home, but we are still offering normal down payments and less than perfect credit is still doable on primary homes.  FHA and VA lending is also available with a minimum 640 credit score.

Be expected to furnish income and asset documentation to be within 30 days of your closing and your employment must be solid.  We will do a verifcation of employment a day or so before closing and you can’t be furloughed to still qualify.  If you opted for Forbearance per the CARES act, then you will need proof you are no longer in Forbearance to qualify.

Contact us Today and we can help you understand the Covid19 guidelines and get you the best deal possible on your next mortgage.  We survived the 2008 crash and recession, so I am confident we will thrive during and after the pandemic.

Stay Safe and Stay Healthy.

Eric Weishaar

President | NMLS# 207659