April 17th, 2020 11:48 AM by Jackie A. Graves, President
Mortgage lenders are battling economic uncertainty by raising
minimum credit scores, requiring higher down payments, triple-checking
employment status and even eliminating certain loan types altogether.
As job loss reached staggering heights due to the coronavirus
pandemic (more than 16.8 million workers
have filed jobless claims in the past two weeks), fear strikes deep
among lenders worried that high unemployment numbers will translate into mortgage defaults and late payments down the road.
Chase recently announced that it would raise its minimum credit
score requirement to 700 and hike the minimum down payment up to 20 percent,
from 3.5 percent. Lenders large and small across the country are following
Wells Fargo and US Bank both adjusted their minimum score
requirement to 680 (including for FHA and VA loans, which typically
feature lower credit-score requirements as low as 580), while Flagstar Bank
upped its minimum to 640.
Better.com temporarily stopped offering FHA loans, while also
increasing its minimum FICO score for borrowers. They’re still offering
jumbo loans; however, they no longer lend to anyone with higher than an 80
percent loan-to-value (LTV) on jumbos.
Navy Federal Credit Union also stopped offering FHA loans, with
the hopes that they will resume that product in early 2021, “but that’s not
fully confirmed at this point,” said a spokesperson for Navy Federal Credit
“Credit requirements have gotten tighter across the board.
Lenders are raising credit score requirements by 100 points,” says David
Lazowski, regional SVP at Fairway Independent Mortgage Corporation in Boston.
“We used to do loans down to 520, now we’re up to a minimum 580 credit score,
there’s a chance they might go to 700. We hope that doesn’t happen because it
will put people at a disadvantage.”
A report from the Mortgage Bankers Association (MBA), the
Mortgage Credit Availability Index (MCAI), shows that mortgage credit supply
fell 16 percent in March, the lowest it’s been since June 2015.
“There was a reduction in the availability of loans with lower
credit scores and higher LTV ratios, and the largest pullback came from the
jumbo and non-QM space,” said Joel Kan, associate vice president of economic
and industry forecasting at MBA. “This month’s release highlights the large
retreat from jumbo and non-QM investors due
to a sharp drop in liquidity. Lenders are making credit criteria changes to
account for the increased likelihood of forbearance and defaults, as well as
Lenders are also checking employment status several times
throughout the loan process, even calling employers the day before the loan is
funded to ensure the borrower is still employed.
As people work from home, borrowers face challenges in locating
the appropriate person to verify employment. This can slow down the loan
process significantly, so lenders are asking borrowers to make sure their
employer is reachable during this disruption to the normal workflow, says
Stricter requirements, including larger down payments and higher
credit scores, will make it difficult for some folks to qualify for a mortgage,
particularly first-time homebuyers. About 80 percent of FHA loans, for example,
are taken out by first-time homebuyers. Since these loans have less-stringent
requirements, like lower down payments and credit scores dipping into the mid
to high 500s, there’s a correlation between first-time buyers and low down
payments, high LTVs and lower
The average FICO score for Americans in
2019 was 703, according to a report by Experian.
However, that average falls below 700 for every age group under 50, which will
affect the ability of Gen Xers and millennials, the largest share of
homebuyers, to get a mortgage.
Here’s how those average FICO scores break down by age group:
“I think you’re going to see an impact in that first-time
homebuyer market,” Kan says. “First-time homebuyers are usually in that low
minimum down-payment range and may have a lower credit score compared with
The main problem for homebuyers with below-700 credit scores,
high LTVs and low down-payments is that lenders are starting to shy away from
any perceived risk. As forbearance requests roll in, the strain on the mortgage
industry amplifies. And there’s no telling when we’ll begin our trek back to
“Until the Capital Markets can stabilize, which certainly can be
realized by the larger banks, borrowers will be in for a lengthy ride,” says
Randy Carty, strategic mortgage consultant at Real Estate Bees, a real estate
technology company based in Houston. “In past down cycles, and following
the last 2008 crash, it has been shown that confidence was typically restored
within 12 to 16 months. However, the current events are unprecedented, and
there is no real certainty as to what the markets may or may not do.”
The next steps depend on what position you’re in financially and
how secure your employment is. For folks whose situation hasn’t been disrupted
by the coronavirus, this could be a good time to improve your credit score and
save for a larger down payment, if your budget allows. Continue to shop around,
as you might find lenders who will work with you and offer a competitive
Those who have less secure employment or have been furloughed or
laid off might need to put their homebuying on pause until the national
emergency is over.
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