Homebuyers are finding it harder to secure a new mortgage, or refinance to a new mortgage deal, at the very time that US mortgage rates are falling back to record lows.
While the coronavirus pandemic means there are currently few people actively looking to buy a new home, there are still a number who were already in the process of making a house purchase who will be looking to mortgage lenders to secure a deal. Similarly, there are numerous existing homeowners who will be eyeing up the freshly cut mortgage rates as a means to save money through one of the best refinance mortgage companies.
Tighter lending criteria
Sadly, however, it is getting tougher for borrowers to complete on the attractive mortgage deals that they see. This is because even the best mortgage lenders are tightening their lending criteria for fear of the impact the coronavirus will have on the ability of borrowers to meet their repayments.
Indeed, according to the latest Mortgage Bankers Association (MBA) data, mortgage availability decreased 16% in March to the lowest level since June 2015. While availability declined across all types of loan, the drop was most notable among conventional jumbo loans - those that are valued above the conforming loan limit of $510,400 - where the relevant indicator slumped by 36.9% compared with the previous month. The availability of conventional loans overall dropped by 24.2% month-on-month as a result, while Government loan availability fell by 6.6%.
In particular, it is the borrowers that lenders deem to be the most risky - so those who need to borrow the most, or have had credit problems in the past - who are now finding far fewer mortgage options available to them than just a month ago.
“There was a reduction in the availability of loans with lower credit scores and higher loan-to-value (LTV) ratios, and the largest pullback came from the jumbo and non-qualified mortgage (non-QM) space," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. "This month's release highlights the large retreat from jumbo and non-QM investors due to a sharp drop in liquidity. Lenders are making credit criteria changes to account for the increased likelihood of forbearance and defaults, as well as higher costs."
Only last week, Wells Fargo raised its minimum credit score requirement for mortgage loans to 720, while JPMorgan Chase has subsequently announced it will require borrowers to have a credit score of at least 700 and a 20% down payment in order to qualify.
Mortgage rates on the decline
The frustration for borrowers is that mortgage rates are now firmly on the decline, and once again at - or fast-approaching - record lows. According to the latest Bankrate.com data, the average rate for a 30-year fixed mortgage of 3.62% has dropped 15 basis points over the last seven days, and from 3.99% just a month ago. At the current average rate, this means borrowers will pay principal and interest of $455.77 for every $100,000 borrowed, a saving of $8.48 compared with a week ago.
Similarly, the average 15-year fixed mortgage now commands a rate of 3.11%, down 12 basis points in the space of a week, and the average that can now be expected to be paid on a 5/1 ARM is 3.46%, down 6 basis points since the same time last week.
Separate MBA data released yesterday showing that the share of mortgage loans in forbearance has continued to climb suggests lenders are right to rein back on their lending criteria. For borrowers, however, there is little to suggest that the tighter rules will be relaxed anytime soon.