The Market Post COVID-19
During the pandemic, the mortgage market has seen a downturn in homes purchased, resulting in a decline in purchase loans acquired. In contrast to the significant drop in purchase loans, there has been a noticeable increase in the number of homes refinanced due to the decline in rates because of measures taken by the U.S. government to combat a possible economic decline.
All over the nation, there have been varying degrees of orders to remain at-home implemented. These orders, though well-meaning, have caused many businesses deemed non-essential to close their doors, leaving millions without jobs. Unemployment claims have reached a record of nearly 7 million within a month, surpassing previous records from the 2008-2009 recession. As a result, many are forced to take advantage of mortgage forbearance. As beneficial as this may be to those who are struggling financially, it may present some obstacles in the long-run. For example, borrowers who are currently in forbearance will not be able to purchase a new home with a mortgage, as their current status will serve as a negative signal to new servicers. This is true even for borrowers who are selling their current homes. Furthermore, most banks may not allow borrowers in current loan forbearance to refinance their homes.
In addition, individuals who have lost their job or have been furloughed due to COVID-19, while applying for a mortgage, cannot close on their loans until they return to work. Investors are making sure to do their due diligence by verifying that a borrower is not only actively employed, but that he or she will remain employed after the loan is closed. Investors are now performing multi-stage verifications of employment, starting at the approval of the loan until it closes. Many lenders who partner with larger investors now require that borrowers sign an attestation form on the day of closing. By signing this form, borrowers acknowledge and attest, to the best of their knowledge, that their employment status will not be affected by COVID-19.
Taking New Measures
Borrowers planning to purchase their homes by acquiring a loan should make sure that they remain employed throughout the entire application process. The reason being is that borrowers pay some out-of-pocket costs that are non-refundable when applying for a loan. The loan may be denied or postponed if the borrower stops earning income during the application process. The borrower will then have to repay for services such as appraisals, previously ordered.
Borrowers who are not looking for a conforming loan program, such as Fannie Mae or Freddie Mac, but qualify for a portfolio loan should be prepared to make a larger down payment. Most investors now require a minimum down payment of 25 percent. A higher down payment is required because funding for portfolio loans is limited; therefore, requirements have become more stringent. Borrowers should be aware of this change before considering a portfolio loan.
Do not, however, let these changes deter you. The market is still alive, we’ve had to pivot to adjust to current conditions, but there are plenty of opportunities available.
Though we are currently within the eye of the storm, we know it is only temporary. Life will return to normal, the market will adjust, and the economy will bounce back. The only thing that is uncertain is how we will get there.
Finally, as individuals return to work, as businesses re-open, and as society slowly returns to normal, the effects of the COVID-19 pandemic may still be present. Like any other major world event, we will still be talking about the year 2020 and how COVID-19 turned the world on its head. However, we will also remember the great lessons we learned and how we persevered….