Why is it Difficult to Get a Mortgage or Home Loan During a Pandemic?
The mortgage industry has been completely changed by the coronavirus COVID-19 pandemic. Due to many, many people losing their main sources of income because of the whole world essentially grinding to a halt, almost 4 million mortgages are in forbearance. In this article, we’re going to discuss why it’s becoming more difficult by the day to get a mortgage or to refinance your home loan during the coronavirus COVID-19 pandemic, and what new strategies the industry is taking to combat these new challenges and situations.
E-Close Your Home Loan from Wherever You Are Social Distancing
On Q Financial is proud to introduce our early-to-market E-Close. Our newest solution is answering a very real problem for consumers currently affected by COVID-19 stay-at-home orders.
If you’re interested in closing your new home purchase using our exclusive E-Close format, contact On Q Financial today.
Staying Ahead and Flattening the Curve with Home Loan E-Closing
When the COVID-19 pandemic put the world on pause, it completely turned the homebuying industry on its head. A process reliant on face to face interactions and physical in person signing of documents became suddenly unrealistic. Even a simple mortgage refinance became risky.
While On Q Financial has offered hybrid closings for years, combining online document submission and automated verification processes with in person signings, it became absolutely urgent to find a new, completely remote, solution: E-closing. While not all consumers are willing to purchase sight unseen, we recognize we need to meet potential borrowers where they’re at for loan closing, which is home.
Why Can’t I Get a Mortgage During the Coronavirus?
Can I get a mortgage during the coronavirus COVID-19 pandemic? This is a question that’s apparently on many potential borrowers’ minds as we’re quickly approaching the summer months and rounding in on the middle of 2020. The year has been a whirlwind for most. Now months into dealing with the coronavirus on a global scale, many people are starting to realize that it’s become increasingly difficult to purchase a home. it is notably more difficult to refinance a mortgage although interest rates are now hitting all time lows. The major worry right now of some mortgage industry professionals and consumer advocates is that the repercussions of the pandemic could end up seriously putting some homeowners in bad financial positions.
Are Lenders Changing Requirements for Borrowers?
Borrower requirements are changing, this is not a question. JPMorgan Chase announced in early April that they are now requiring a credit score at a minimum of 700 and at the least a 20 percent down payment for most new mortgage originations. Chase isn’t the only bank of the country’s biggest mortgage lenders that are tightening the requirements for borrowers to apply for loans. Wells Fargo has also begun raising their borrowing requirements, saying those intended in home equity lines with Wells Fargo now must have a minimum credit score of 720.
Ken Leon, the director of equity research at the Center for Financial Research and Analysis, said “The large banks, including JPMorgan Chase, are moving significantly to looking at credit risk and looking at loan portfolios where they need to assess potential delinquencies and possible charge-offs”.
Will More Lenders Tighten Their Mortgage Requirements?
Joel Kan, the Mortgage Bankers Association’s Associate Vice President of Economic and Industry Forecasting, says that these new lows we’re seeing in mortgage credit availability are larger than the usual monthly swings. “With the weaker economic picture we have and the potential for mortgage delinquencies coming, you can see some lending is being pulled back to the more risky borrower and credit profiles.”
At the start of March this year, the availability of mortgage credit saw a large decrease. The Mortgage Bankers Association reported their benchmark index for mortgage credit availability dropped by 16 percent and the availability for all types of loans is declining. As we head into the year and track the industry changes, it looks like even more lenders will begin changing and increasing their standard requirements.
What Factors Are Preventing Borrowers from Closing on Loans?
There are many factors preventing borrowers from closing loans during this difficult time period. Unfortunately, the truth is that many potential borrowers will find it increasingly difficult to get a loan or buy a home as the year goes on. One reason loans aren’t closing right now is that many businesses are simply closed right now. Many people are out of work and therefore many places are just unreachable. This is making it very difficult for lenders to verify many hopeful borrower’s employment status or income. Municipal offices as well are closing and appraisers are unable to visit homes in person due to social distancing being advised across state lines right now.
Appraisals Can Now Be Postponed Until 120 Days After A Mortgage Closes
As of April 17th, 2020, banks can now delay getting an appraisal on a property for as many as 120 days after a mortgage closes. In the details of the interim final rule, regulators state how the current environment is impacting the ability of certain people to buy a home or refinance if they want to or need to. Under the new rule, banks can postpone an appraisal on a residential or commercial property for 120 days after the loan is closed.
The rule only applies, however, to banks under the oversight of the Fed, FDIC and OCC, and the rule change only applies to loans kept in banks’ portfolios. Loans sold to or guaranteed by the Federal Housing Administration, Department of Housing and Urban Development, Department of Veterans Affairs, Fannie Mae, or Freddie Mac will still require an appraisal before closing, per each agency’s or company’s rules. The rule applies to “residential and commercial real estate secured transactions, including loans for new money or refinancing transactions.”
Regulators proposed the rule change due to the need to “extend financing to creditworthy households and businesses quickly in the wake of the national emergency declared in connection with COVID-19.” Regulators caution that banks should still utilize sound lending practices even though they are allowing banks to delay appraisals until four months after a mortgage closes. The appraisal delay rule is now official and will be in place until Dec. 31, 2020.
How many people are in forbearance because of the coronavirus (Covid-19) pandemic?
As of May 2020, more than 3.4 million Americans are in mortgage forbearance plans. Because they are in forbearance, this allows these borrowers to pause payments for a month to as long as a year. As the coronavirus pandemic continues to jolt the economy, more people will face financial difficulty, including how to pay their monthly mortgage bill.
Have Non-QM loans disappeared from the market?
It appears that for now, because of the current economic climate, Non-QM loans have disappeared from the market. Many of the biggest lenders specializing in lending to borrowers outside the Qualified Mortgage lending box have begun pausing their lending activities because of the uncertainty in the market from the coronavirus Covid-19 pandemic.
How Borrowers with Low Credit Scores are Being Affected by the Pandemic
For prospective borrowers with credit scores below 720, new mortgage offers have dropped by five percentage points during the first three months of this year according to LendingTree. Additionally, during this time, mortgage refinance offers dropped by 10 percentage points for borrowers, again, with credit scores below 720. The drop did accelerate between the months of February and March.
How Can Contact-Free E-Closing Help You During the Pandemic?
In the current COVID-19 climate, many consumers are being asked to stay at home to support public health efforts. Those consumers seeking funding for their home purchases are looking for safe ways to do so. E-Closings are the epitome of social distancing, going one step beyond hybrid closings and allowing loans to close completely contact-free.
The Benefits of E-Closing
- Completely Contact-Free
- Close Remotely Wherever You Are
- Secure Document Signing
- Automated Verification
- Up-To-Date Communication
- Eliminate Unnecessary Travel
- Successfully Purchase Your Home During Pandemic
A Homebuyer Stuck In Costa Rica During COVID-19 Completes a Home Loan E-Close
At On Q Financial, we believe the dream of homeownership should be a reality for everyone. But what happens when that dream is interrupted by, let’s say, a global pandemic? That is exactly what happened to an On Q Financial borrower, when Coronavirus restricted their travel back to the US from Costa Rica. Using early-to-market technology, we made their dream a reality by E-Closing their loan completely online.
Just as the coronavirus began changing our daily habits and social distancing became our new normal, On Q Financial had been moving through the steps of the refinancing process with a new borrower. As it was with most of us, this borrower suddenly found himself unable to visit anyone in person. In this particular case, the borrower found himself stuck in Costa Rica, unable to travel back to the US. The borrower started to fear that completing the home refinance would now be impossible. Luckily for the borrower, at On Q Financial, we don’t give up that easily.
Staying true to our mission to make the dream of homeownership a reality for everyone, we did everything we could to find a new solution to this new problem. Through diligent research and the utilization of brand new technologies, we’re extremely proud to announce that we’ve successfully conducted our first ever completely online loan refinancing with our borrower stuck in Costa Rica. Using early-to-market technology, we’ve been able to make the dream of homeownership a reality by E-Closing this borrower’s loan refinancing completely online from his current place in Costa Rica.
Is an E-Close a Perfect Fit for You?
Our early-to-market E-Close is solving a very real problem for consumers currently affected by COVID-19 stay-at-home orders. If you find yourself practicing social distancing, as many of us are, and you are simultaneously needing to get moving on a home loan, an E-Close solution from On Q Financial might be right for you.
If you’re interested in new home purchases and converting using our exclusive E-Close format, contact On Q Financial today.
About the Author
Before opening On Q Financial in 2005, John Bergman originated and funded 450 units a year as a loan officer. He founded the company with just $1M of personal life savings—committed to his vision for building the best independent mortgage organization in the industry.View John's Profile