By Jennifer Galvan (NMLS 1646419), NXT Mortgage and Member of of CCAR’s Affiliate Committee
Unlike the stock market, mortgage rates can change multiple times a day. This has been a common occurrence over the last 30 days. I have seen lenders change their rates 4+ times a day on some of the more volatile days in March. However, as of mid April, rates are starting to settle down.
In February of 2020, mortgage rates dropped to some of the lowest in history causing a huge influx of refinance applications. Lenders raised rates 1-2% in just a few days in order to slow the influx of applications as they were reaching their capacity for processing new loans.
The Federal Reserve cutting the rates at the beginning of March made consumers believe mortgage rates would go lower. The opposite occurred as mortgage rates went higher, because mortgage rates are not set by the Feds. The two biggest factors in determining mortgage rates are Mortgage Backed Securities (MBS), and Mortgage Servicing Rights (MSR).
COVID – 19
COVID-19 has substantially changed the lending landscape causing lenders, banks, and even Freddie Mac and Fannie Mae to change requirements for obtaining a home loan. Some of these changes include:
- Higher credit score requirements, FHA’s minimum FICO has been raised to 620 from 580.
- Lower DTI (debt to income ratio) thresholds, some lenders have changed conventional DTI requirements from 50% down to 40%.
- Lenders and banks are requiring certain milestones to be met before offering to lock in a rate. (More required reserves, depending on the credit score and DTI, up to 12 months of reserves can be required.)
- Conventional Loans are seeing a reduction of the qualifiable income for a self-employed borrower by up to 25% in some cases.
- Rental income may not be able to be included depending on the amount of reserves of the borrower.
- Most lenders have stopped Non-QM and Jumbo Loans Completely. These are loans like bank statement loans, ITIN loans, and derogatory credit loans.
- Appraisals have changed as well with most lenders offering an exterior only appraisal option, Fannie Mae and Freddie Mac are offering more appraisal waivers.
- Some options for closing now include; Virtual closings, home front porch closings, and even drive thru closings.
- Many lenders and banks are requiring VOE’s (Verification of Employment) to be done twice, once during the loan process and a second time on the day of closing.
It is important to talk to your Mortgage Broker/Loan Originator on how your client could be affected by these changing guidelines as they vary greatly depending on the lender/bank.
If someone is truly unable to make their mortgage payment due to COVID-19, there are several options available to help them. Something to keep in mind if your clients are asking you about Forbearance is that the missed monthly mortgage payments will be required to be paid in full once the forbearance period is over. Always advise your client to speak to their loan servicer about the details of any forbearance or other deferred payment options and get the full details before making a decision.
Although it might feel like we’re in another world, like Dorothy in the Wizard of Oz, we will get through this. Once people are able to return to work we should see all these temporary guideline changes go back to normal. The most important thing you can do today is remain in constant communication with your loan officer and your clients.
If you have any questions about how COVID-19 affects a home purchase or refinance, please email [email protected] and your message will be provided to CCAR’s Affiliate Committee.