I think this is crazy but the homes priced at ($510,400 and higher loan amount) will probably take a hit the most during this COVID-19! To me this is crazy because historically, these are the most qualified borrowers. Seems like the lenders are saying that today, these are the highest risk borrowers (or they can't offset the risk from these borrowers through the GSE's).
I spoke earlier about JPMorgan Chase, the nation’s fourth largest home loan provider, just raised its borrowing standards (must now have a credit score of at least 700 and must put down 20 percent of the total purchase price) on home loans and suspended home equity line of credit offerings. JPMorgan’s decision to back away from mortgage lending has to hurt the higher end homes. With less mortgage options, less buyers will be able to get the loan, lowering the demand for these homes. Lower demand = lower prices! I'm thinking that a 20% down payment might be tougher due to the stock market crash (yes, it's come back but I think that people might be scared to take any cash out of the market).
Home prices on the upper end have to drop due to these stricter lending guidelines.
The double whammy is that the action from these banks comes at a time when nonbank lenders, which now provide a majority of home loans may not be able to absorb a flood of defaults. Non-bank lenders are mortgage companies that can't get funds directly from the Federal Reserve. Some of these companies are Bay Equity, Fairway Mortgage, Nexa Mortgage, Peoples Mortgage and Quicken Mortgage. Read my other post about Forbearances and the effect on the nonbank lenders.
This tightening of the jumbo loan market comes at a time when the coronavirus has led to a rise in mortgage forbearance requests, not to mention the 22 million Americans who have filed for unemployment.
Not surprisingly, other larger banks have followed JP Morgan Chase. US Bank increased its minimum credit score requirement to 680 and Wells Fargo said it was restricting its jumbo loan program. Wells Fargo will now only allow customers with at least $250,000 in liquid assets to refinance, a move designed to eliminate all but the wealthiest potential homebuyers. Again, this will decrease the number of people who can get a Jumbo loan.
I'm also noticing that a lot of the banks are refocusing to refinances which are less risky and booming right now due to crazy low mortgage rates. With no desire to take on the Jumbo loan risk, this means it's harder to get a Jumbo Mortgage.
Alternative lenders are now facing growing concerns about their ability to service mortgages and surviving this downturn. A servicer has to continue to make the payments to the note holders even if a forbearance is approved. Nonbanks don’t have access to the hundreds of billions of dollars in liquidity that the Federal Reserve is pumping into banks. If these non-bank lenders get wiped out, it could mean fewer players in the home loan space all together further tightening credit.
The nonbanks and servicers have asked the Federal government for help with providing liquidity with forbearances. But right now, the Federal Housing Finance Agency said the agency has no plans to provide liquidity through its mortgage agencies Fannie Mae and Freddie Mac to those nonbank lenders. Pretty much they are saying that either manage the forbearance crisis by yourself or shut down. If these servicers shut down, it shouldn't affect the mortgage market because the loans aren't going default, just that the servicing will transfer to another company. The concern I have is if any other servicer will be willing to take on added risk of more defaults.
Let me know what you think.