Lauren Bunting

(April 10, 2020) If you’ve been furloughed or laid off from your job, there are options now to be able to reduce or suspend your mortgage payment.

While this is a necessary form of relief due to the pandemic causing such widespread economic impacts, the mortgage market is feeling the effects of these aid programs, and the trickle-down effect is going to be felt by consumers who need loans.

Mortgage lenders are increasingly tightening their standards to minimize borrower default moving forward. In simple terms, lenders are getting “pickier.”

Many lenders are modifying their business plans and making changes such as no jumbo loans, no bond loans, and only accepting FHA, USDA and VA for the safer buyers and not the ones with the riskier high debt-to-income ratio.

Overlays are being added to the loan origination process. An overlay is basically a policy that a specific lender follows such as minimum credit score.

Where credit score requirements were easing up finally after the 2008 downturn and the implementation of the Dodd-Frank Act in 2010, we are now seeing those tougher loan origination guidelines return.

For instance, many lenders now are adding an overlay requirement to Fannie Mae and Freddie Mac’s minimum 640 credit score, and they are requiring 20, 40 or 60 points more.

Due to the recent large numbers of refinances and job losses, the loan portfolios—who are the servicers of mortgage loans—are suffering.

Because of this accelerated level of pre-payments (refinances) and the uncertainty of repayment (job losses), the value of mortgage servicing was cut in half. This drastic decrease prompted margin calls from many servicers, which in turn reduces the lenders overall net worth, which in turn reduces their capacity for lenders to lend.

“Although times are tough, we have been through tough times in the mortgage industry before and there is still ample opportunity in the market,” local lender and Eastern Shore Manager of Embrace Home Loans, Jason Cook, said. “Our company is prioritizing purchases, so buyers looking to purchase their home can rest assured that they will be given priority. We will as an industry, community, and country come out of this stronger than we went in.”

– Lauren Bunting is a licensed Associate Broker with Atlantic Sores Sotheby’s International Realty in Ocean City.

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