The MORTGAGE INDUSTRY has evolved dramatically over the last few weeks. You will need at least 700 TRUE FICO to be approved for any home loans. In a nutshell the primary reason we are seeing such a contraction in the market is due to not only the fears of an economic collapse but due in part to the $2 trillion stimulus package that provided mortgage forbearance where borrowers of government-backed mortgages ((Fannie Mae, Freddie Mac, HUD, VA and USDA) can request up to 360-day payment forbearance without proof of hardship. No additional fees, interest, or penalties can be assessed for the forbearance. Except for abandoned or vacant property, there may be no foreclosure actions for 60 days from 3/18/2020. This means loan servicers would not receive payment for up to a year.
On conventional loans, this is not as much of a problem as the servicers are only required to pay Fannie Mae and Freddie Mac the actual amount they receive from the borrowers. However, on government loans, this is not the case. The servicers are required to make the scheduled payments regardless of whether or not they receive payment from the borrower hence most investors do not want to make government loans at the moment. For example, Chase Bank was pricing a VA refinance loan today at 3.500% with a 16.547 discount which means the borrower would pay almost 17% of the loan amount to get that rate. This is effectively removing investors from the government mortgage market with them being able to say they still offer government loans.
“The markets continue to suffer through major repercussions of the collapse of the economy. With a potential 30 % unemployment rate looming, low fico government (FHA, VA and USDA) has all but dried up. No one wants to lend to a segment of the population most likely to be crushed. Jumbo lending is drying up as well. No one wants to be on the hook for large loan amounts that don’t have a government backstop.
For the next 6-8 months the market is only going to be in high fico government and Fannie/Freddie business and it is important that you prepare your referral sources and borrowers of this. On FHA you will likely have to charge 1-2 discount in all but the best fico scenarios. Realtors, Sellers and borrowers are not used to this expectation, but it is the new realty.
Lenders/underwrites must now verify employment before they fund on government and jumbo loans. This is a further reflection on the rapid decline on the economy.”
Things are getting ready to get really tight real quick!!!