What Agents Need to Know Now about Mortgage Availability

BY MICHELE LERNER

Realtors® who have been in business for more than a decade know mortgage credit availability has been on a rollercoaster, with extremely easy credit guidelines followed by hyper-tightened credit. In recent years, mortgage credit has gradually become more available, but several factors in 2020 have led lenders to pull back the reins and tighten credit a bit again.

Extremely low mortgage rates drove refinancing applications to new heights, but when the pandemic hit, businesses closed and more than 40 million Americans filed for unemployment—mortgage forbearance programs were needed. Lenders, already overwhelmed with applications, were hit with the need to help borrowers in financial distress. Naturally, lenders wanted to reduce their exposure to risk, but not every lender reacted the same way.

Changes to loan program requirements depend on the individual lender. Some lenders have placed additional restrictions, known as loan overlays, on programs such as increasing the minimum FICO score or requiring post-closing cash reserves,

says Michael Borodinsky, branch manager of Caliber Home Loans in Edison. Lenders with these stipulations want “borrowers [to] have additional funds available to cover potential financial impacts such as a job loss, compensation reduction or a furlough. Borrowers would be wise to not only shop for the best terms but also to make sure they meet the lender’s specific guidelines.

Realtors® need to have relationships with reliable lenders who can offer guidance to their clients. Keep in mind that loan guidelines and programs change frequently, so specifics mentioned in this article may have changed by publication time.

If an agent has been shopping with a client prior to April, it would be a good idea for them to have their client update their preapproval or speak with their mortgage advisor to see if anything has changed,

says Corinne Wallace, vice president of mortgage lending for Guaranteed Rate Affinity in Madison.

Furloughs, Forbearance and Loan Applications

If your clients have been furloughed or placed their mortgage in a forbearance program, they may need to go through some additional steps before they can qualify for a loan. Generally, if someone is furloughed and their income is required to repay the loan, the clients will have to wait until they are fully working again, says Scott Linder, national sales director for mortgage lending for TD Bank in Mount Laurel, but there are nuances.

Borrowers and loans are not cookie-cutters, so if someone has another source of income in the household that can be used to qualify, then the furlough may not matter,” says Linder. “Our loan guidelines generally require a debt-to-income ratio of 43 percent and a loan-to-value of 70 to 80 percent, but we look at every loan application individually to see if we can make it work.

Everything depends on the individual scenario of our members, says Amy Wright, a loan officer with Navy Federal Credit Union in Cherry Hill. A furlough does not necessarily block a loan approval, particularly if someone can get a cosigner.

The mortgage forbearance program has been frequently adjusted, but generally borrowers cannot qualify for a new mortgage when they have a loan in forbearance, says Janet Bossi, senior vice president and loan origination manager of OceanFirst Bank in Ocean City.

We have had people who requested forbearance out of an abundance of caution or who were furloughed and who are now back to work,” says Bossi. “If you can document that you made all your payments even when in forbearance, then you can apply for a new loan.

Fannie Mae and Freddie Mae require loan applicants to wait three months after their forbearance ends and to document that they have made three consecutive monthly loan payments before a new loan can be approved.

Prepare your Clients for Extra Scrutiny

Loan preapprovals are typically good for 90 days, but since loan guidelines have been fluid this year, borrowers should check in with their lender before making an offer to confirm their preapproval is valid.

Some lenders raised their minimum credit score for all loans to 700," says Brian Woltman, branch manager of Embrace Home Loans in Basking Ridge. "Our minimum credit score for conventional loans was 620, but we raised it to 640. That’s why it’s so important to go call your lender to be sure that loan will still work.

In addition, Woltman says, borrowers should be prepared to update their information close to the closing date.

We want to know if their income is the same," says Woltman. "We ask every borrower just before closing if they are still working, if they have been furloughed or if their hours have been cut. We check to see if they’re paying all their bills, too.

Typically, bank statements must be provided for the previous 60 days before the closing and employment must be verified within one week prior to the closing, Wright says.

Bossi says that borrowers will also need to provide documentation that they have paid the mortgage on any other properties they own.

The best thing agents can do is to guide their clients to have all their documentation ready when they meet with the lender, such as tax returns, W2s, pay stubs and bank statements, because people don’t always have that paperwork around, says Linder.

Self-Employed Borrowers May Need Extra Time to Qualify

Self-employed borrowers have been the most impacted by the new post-COVID-19 guidelines, says Borodinsky.

Many small business owners were required to shut down if they were not considered essential and most lenders now require that the business be reopened for at least 30 days prior to settlement, says Borodinsky.

Fannie Mae and Freddie Mac updated their guidelines for self-employed borrowers and now require an audited profitand-loss statement or an unaudited profit-and-loss statement with business bank statements from the most recent two months, says Woltman.

Jumbo Loan Availability

Jumbo loans, which are loans above the conforming loan limits that range from $510,400 to $765,600, depending on the county, are typically among the first to be tightened because of the larger amounts borrowed. Some lenders stopped offering jumbo loans and others raised their down payment requirement from five or 10 percent to 20 percent because of the concern about the economic shutdown and the risk of nonpayment, says Woltman. He says borrowers need a credit score of at least 700 and usually must have a maximum debt-to-income ratio of 43 percent to qualify for a jumbo loan.

There is a dichotomy for jumbo loans between banks and independent mortgage bankers because independent lenders didn’t have the capital on hand to offer jumbo loans when liquidity was tight,” says Linder. “Banks like TD have deposits, so we were able to continue to offer jumbo loans.

Guaranteed rate continues to offer jumbo loans, but with tightened down payment, reserve and credit score requirements.

We also have alternative options to the new down payment requirements such as a piggyback second mortgage for qualified borrowers, says Wallace.

Loan Programs to Share with Clients

While some of the larger banks eliminated their low down payment loan programs and immediately raised their minimum FICO score requirements, a variety of financial institutions continue to offer conventional loans with down payment requirements as low as three percent; Veterans Affairs and United States Department of Agriculture Rural Development loans with zero down payment requirements, and Federal Housing Administration loans with a 3.5 percent down payment requirement. In addition, different lenders offer their own in-house loan programs with low down payment requirements and without private mortgage insurance, typically for low to moderate-income households, says Borodinsky.

The New Jersey Housing and Finance Agency offers a Police and Fireman’s program for active first responders with excellent terms,” says Borodinsky. “Some lenders offer program discounts to teachers and union members too.

The Homebuyer Dream program in New Jersey, offered by several participating banks and credit unions, provides up to $14,500 in closing cost and down payment assistance for first-time buyers who have an income of 80 percent or less of area median income for their county, says Bossi.

At OceanFirst we also offer a discounted mortgage rate for first-time buyers with low-to-moderate income that can be combined with the Homebuyer Dream program, says Bossi.

The Homebuyers Choice loan program from Navy Federal Credit Union, a zero down payment loan program, does not require mortgage insurance. Membership in the credit union is available to anyone with a relative who has served in any branch of the military, says Wright.

This loan program also allows up to six percent of the sales price in seller credits to cover closing costs, which is double the Fannie Mae allowance,” says Wright. “It’s a great option for people who may have exhausted their savings if they were furloughed or had a reduction in pay during the pandemic but are now fully working again.

TD Bank’s medical professional loans, which cater to physicians leaving school who have an offer letter for a new job, allow for 100 percent financing up to $750,000 and 95 percent financing up to $1.25 million, says Linder.

TD Bank also offers the Right Step loan program for firsttime buyers who earn 80 percent of area median income. The down payment may be as low as three percent without requiring private mortgage insurance.

Many lenders also offer the HomeReady mortgage from Fannie Mae with a down payment of three percent. The program is designed for creditworthy low-to-moderate income borrowers.

Advice for Agents

Shopping for a lender is more important than ever right now, says Wright, because lenders have varied standards and numerous special programs.

Closing times vary widely from 30 to 55 days for purchase loans, with some delays during the stay-at-home period because of appraisal issues and other delays because of the volume of applications.

Now more than ever, your team dictates your success,” says Woltman. “You need to be confident that your client is working with a lender who help them restructure a loan if necessary. Your team, including the lenders you work with, dictate how fast you can close and if you can close.