Mortgage loans are getting harder and harder to come by as lenders tighten credit standards during … [+]
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Thinking of applying for a mortgage or refinance? According to new data, you might have a hard time.
The latest Mortgage Credit Availability Index shows lenders are tightening their standards amid the coronavirus pandemic. Overall mortgage availability is now 16% lower than it was in February and at its lowest point since June 2015.
The availability of conventional loans dropped 24.2% in March, while jumbo loan availability dipped 36.9%. Government loans, which include USDA, VA and FHA mortgages, fell 6.6%.
According to Joel Kan, the associate vice president of economic and industry forecasting at the Mortgage Bankers Association, the drops are due to the stricter eligibility requirements that lenders are putting in place, as concerns surrounding the COVID-19 outbreak—and its economic impact on borrowers—grow.
“Lenders are making credit criteria changes to account for the increased likelihood of forbearance and defaults, as well as higher costs,” Kan says.
Signs that lending standards were changing started to crop up a few weeks ago, as lenders raised their credit score minimums on jumbo and FHA loans. Some borrowers even saw their in-progress loans dropped just days before closing, and last week, Wells Fargo all but halted its jumbo loan refinance program entirely (only cash-flush Wells Fargo banking customers can now qualify).
Yesterday, JPMorgan Chase announced it would be raising its minimum credit score to 700 on all new mortgage loans. New borrowers will also need at least a 20% down payment in order to qualify.
The tighter standards will make it harder for borrowers to leverage the market’s low mortgage rates, which averaged just 3.33% last week. According to Freddie Mac Chief Economist Sam Khater, those rates could go even lower in the coming months.
“This year the 10-year Treasury market has declined by over a full percentage point, yet mortgage rates have only declined by one-third of a point,” Khater says. “As financial markets continue to heal, we expect mortgage rates will drift lower in the second half of 2020.”