How COVID-19 is Impacting Mortgage Lending
Posted on April 30, 2020
COVID or coronavirus is impacting the mortgage lending industry in the United States to a significant extent. The real estate market has been hit especially hard by the coronavirus. People are less likely to purchase homes or put their homes on the market when an infectious disease is spreading like wildfire. Mortgage lenders and services are feeling an economic crunch due to the coronavirus. Most mortgage lending companies do not have contingency plans for a massive pandemic.
Coronavirus is Like Nothing We Have Seen Before
The United States now has more confirmed cases of deaths from coronavirus than Italy. Over 20,000 people have died from coronavirus. Sadly, many experts have said that the 20,000 figure is an underestimation. The global economy and the U.S. economy have suffered drastically due to the coronavirus, with significant amounts of people filing for unemployment. According to the leading infection disease expert, Anthony Fauci, we may not have normalcy back until November.
Many mortgage lending companies have contingency plans for natural disasters, cyberattacks, and financial downturns. However, coronavirus has caused a disruption in the market unlike anything we have seen before. Even the most well-prepared business owners could not have known or prepared for the coronavirus pandemic.
Mortgage Lenders are Facing Significant Challenges
Mortgage lenders must contend with the economic downturn of the coronavirus. They must also contend with businesses closing, massive job loss from potential mortgage applicants, disruption of income, and other serious issues related to coronavirus. They must also deal with regulatory requirements that are changing frequently due to new laws and regulations becoming passed.
Additionally, mortgage lenders need to prepare for possible lawsuits based on the actions they take today. They will need to make sure that their policies comply with regulations that continue to evolve on a nearly weekly basis. Experts are still wondering how all of these factors will trickle down to affect customers who may be applying for mortgage loans. Many consumers are also wondering what will happen to them if they miss their mortgage payments due to a loss of income from the coronavirus.
The Federal Government Has Suspended Foreclosures and Evictions
Recently, the Federal Housing Finance Administration has taken steps to suspend all foreclosures and evictions based on non-payment of mortgages. They will suspend evictions and foreclosures on customer’s primary and secondary homes as well as an investment property. This regulation will be in effect for at least 60 days. The government could extend that timeline depending on how coronavirus progresses.
Additionally, the Department of Housing and Urban Development (HUD) has suspended everyone from foreclosing on homes and engaging in evictions until April 30 due to the COVID outbreak. Mortgage borrowers are taking advantage of these new regulations and will not be required to pay their mortgage obligations until their income becomes normalized again.
Mortgage Lenders are Engaging in Loan Modifications
Mortgage lenders are now looking into creative loss mitigation options, such as loan modifications. The Federal Housing Administration has stated that mortgage lenders who provided FHA-approved loans should offer borrowers options for loss mitigation. The Department of Housing and Urban Development lists their loss mitigation options in their Single-Family Housing Policy Handbook.
Mortgage Lenders Should Update Their Contingency Plans
As this current pandemic has shown us, mortgage lenders need contingency plans that are specific toward pandemics. Their plans should have a program in place to monitor potential outbreaks with service providers during the pandemic. Mortgage lenders should also have a comprehensive framework to keep their critical business functions going despite many or most employees being unavailable or infrastructure disruptions. A program for monitoring, testing, and revising protocols for pandemic planning.
Mortgage Borrowers are Rushing to Refinance Their Homes
Mortgage lenders have been greatly impacted by the high demand in mortgage loan refinancing. The decline in the economy has led to extremely low mortgage interest rates. Unexpected layoffs, as well as unemployment, has also affected mortgage lending. Even before the coronavirus pandemic, the Federal Reserve drastically cut interest rates. Massive amounts of people have applied for refinancing in the last few months.
Freddie Mac estimated that approximately 11 million mortgage borrowers applied to refinance their mortgages. Mortgage refinances are currently over 75% of all of their mortgage applications. While the demand for mortgage refinancing has increased drastically, mortgage companies are incredibly short-staffed.
Many employees are working from home due to the government shut down orders and stay-at-home orders. Lending companies are also under stress to train employees from one part of their business to do another part of the business to process backlogs.
Mortgage Lenders Have Tightened Their Standards as Coronavirus Worsens
With the corona-induced market volatility, many mortgage lenders are tightening their lending standards. They are attempting to protect themselves from borrowers who may become laid off due to coronavirus shutdowns. Even with the government restrictions against evicting homeowners from defaulting, at some point, the restrictions will ease. The downturn in the economy will lead to borrowers not being able to repay their loans.
Other mortgage lenders have raised their standards for minimum FICO credit scores. In other words, only borrowers with a higher minimum FICO credit score will be able to qualify for Federal Housing Administration loans. Some mortgage companies are adding an additional step regarding verifying employment checks. Borrowers should expect more stringent lending requirements going forward, even after local governments end shutdowns.
Businesses Face Additional Requirements for Mortgage Lending
Businesses who are seeking a mortgage will face additional requirements, especially if they are self-employed. Some mortgage lenders require that borrowers provide a written statement that the business is open and operational and that coronavirus will not have a material impact on their financial statement. If businesses are not able to provide financial statements, the lender will reduce their qualifying income by 25%.
Contact Justice Roberts Mortgage Lending Today
If you are trying to realize your dream of homeownership during the coronavirus, you are likely concerned about qualifying. At Justice Roberts, we can help you purchase a home or refinance your home during this challenging time. Contact us today to speak to an experienced mortgage lending professional, or apply online.