[POWER LENDING]
CORONA SCARE CREATES THE PERFECT STORM FOR MORTGAGE LENDERS
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hould you go house hunting during this pandemic? Probably not. But whatever is happening to the world right now hasn’t hit the housing market yet. So far, the stock markets have fallen and industries are putting themselves on a pause while all other small businesses are taking blows. So far, we cannot speculate about the fate of the next few months. But what we can tell is that the economic impact of the coronavirus will have far-reaching effects, affecting everything from the employment rates to buyers and agent’s willingness to attend open houses, whether on selling the business or just pulling listings. Last month, Quicken Loans- one of the largest loan lenders in the country- said that it had no
Now, homeowners see this as an opportunity to lower their mortgage payments as businesses. Some banks have moved employees to help process a backlog of loan applications. These employees will have no option but to reverify the income and employment during a time when many borrowers are not working. “The resource constraints are phenomenal — it’s going to be a lot more difficult than just moving bodies around,” said Ted Tozer, a senior fellow at
current plans to change the underwriting which leaves a huge possibility that it and others might in the future. Long before the onset of the outbreak, lenders were having trouble with their staffing but now, it’s even worse creating a perfect storm; record refinancing demand, long credit checks and a lot of questions about the workouts for the existing loans that could be jeopardized. But, troubles in the lending market began long, in fact, soon after the mortgage rates began dropping. Low-interest rates pulled a lot of borrowers into the market leading to a stampede of borrowers seeking the refinancing option. The emergency action by the Federal Reserve has dropped the rates to nearly zero.
the Milken Institute and former president of Ginnie Mae. “It’s not only crazy as far as staffing, but what makes this very difficult is that lenders have to go back and revalidate every loan they have in their pipeline. The question also is how much of this they can do remotely and whether there is any slack to move to servicing.” Currently, refinancing makes up about 75% of all the mortgage applications and they have been resilient since Q2 of 2019. The same crisis that fed the refinance, could
be the one killing it, Tozer warned. “If one in five people have income disruption, then they can’t refinance,” he said. Lenders are now forced to ask for waivers from Fannie Mae and Freddie Mac as it has been difficult verifying the borrower incomes. Also, lenders are now going to the FHFA to allow verbal verifications of employment. The non-bank lenders are also seeking appraisal waivers. Many of the independent mortgage bankers are having a hard time selling nonagency loans that normally would be purchased
by the big-bank aggregators. “Lending is in a bottleneck,” said Larry Goldstone, president, and CEO of Aventur Partners, a Santa Fe, N.M., nonbank lender specializing in jumbo loans. “Most of our correspondent buyers and wholesale buyers are discouraging new loans. They are bloated with loans in process and cannot take on any more.” Large regions of the country could be shut down, with the residents being asked to shelter in place. It is already happening in San Francisco and six other neighboring counties. Lenders have asked the counties to give exemptions to continue processing the loans even as the nonbank lenders grow increasingly concerned about the liquidity and the potential for severe disruptions in the financial markets. For the big banks, it is even worse. Operations are now much more difficult, thanks to the social distancing. The Bank of America, for instance, is tapping into the existing workforce to handle the uptick in the purchase applications and demand for home equity loans. While there’s no slowdown in applications, yet, the closing time for all the loans will be delayed.
Wells Fargo, on the other hand, is continuing to hire more loan officers, underwriters, processors, and closers. Currently, all banks are dealing with a massive inflow of calls from the current borrowers asking for forbearance on April mortgage payment due to job losses. Martin Griffith, president of Bank on Buffalo said that the bank is lowering rates for the existing customers rather than having them refinance which most of the banks are currently doing. “If a customer is in good standing with us, we provide them with a [interest] rate modification versus taking them through the entire application and processing and underwriting process,” Griffith said. “It relieves us in large part from handling the increased [refinance] volume.”
Sources & Works Cited https://www.nationalmortgagenews.com/news/virus-scarecreates-perfect-storm-for-mortgage-lenders https://www.nytimes.com/2020/03/13/business/buying-ahome-coronavirus.html