While the number of home sales entering escrow has plunged amid the coronavirus pandemic, some people are still touring homes virtually and willing — at a time of enormous uncertainty — to make the biggest financial investment of their lives.
What they are finding, however, is lenders aren’t always willing to go along.
Mortgage credit is tightening. Some lenders are increasing FICO score and down-payment requirements. One type of low-documentation loan has all but dried up. So-called jumbo mortgages have also grown rarer.
And two major banks have stopped issuing new home equity lines of credit — a potential source of funds for existing homeowners suddenly in need of cash.
“Lenders are concerned … with the severity and the duration of what is going on,” said George Bahamondes, a real estate finance analyst with Deutsche Bank Securities.
That can be seen in the data. The Mortgage Bankers Association’s Mortgage Credit Availability Index, which measures how accessible loans are to borrowers, has fallen sharply. The April index was the lowest since December 2014 and a 12% decline from March. The March index had fallen 16% from February.
Joel Kan, an associate vice president with the trade group, said credit still isn’t as tight as it was in the wake of the 2008 financial crisis. Back then, home prices had plunged, but many families were prevented from buying, losing out to investors who gobbled up cheap housing stock.
What happens next depends on how quickly the economy rebounds. More than 30 million Americans have filed for unemployment benefits and the road to recovery is uncertain.
Experts said lenders are tightening standards because they fear they’ll take in less money, whether it’s because of defaults on existing and future loans or mortgage forbearance programs that allow borrowers to delay payments for up to a year.
“I wouldn’t be surprised if we got back to 2010-2011 type of tightness of credit,” Kan said.
One of the biggest contractions has been in loans that require minimal documentation to prove a borrower’s ability to repay and can’t be sold to or insured by government entities. Such loans — often referred to as non-QM mortgages — are popular with self-employed borrowers who don’t get W-2 forms detailing their wages.
Some major non-QM lenders have announced they’ve stopped issuing loans altogether. That includes Irvine, California-based Impac Mortgage Holdings, which works with outside brokers as well as directly with borrowers under the name CashCall Mortgage.
Impac has cited uncertainty in the marketplace for its decision. Justin Moisio, the company’s chief administrative officer, did not respond to a request for comment.
Angel Oak Mortgage Solutions of Atlanta, another big non-QM lender, said it temporarily stopped making low-documentation home loans. It started making the loans again earlier this…