Is it time to think about home loans?

Many bargain rates will be available mainly to borrowers with good credit, proof of income and enough equity built up in their homes as lenders try to limit their losses should a recession last far longer than many would expect. Vecteezy

Super-low mortgage rates, which took hold back in early April, are now amazingly stretching into summer, giving many who didn’t refinance yet a second chance.

“The average 30-year fixed mortgage rate is 3.56%, close to the record low of 3.50%,” said Greg McBride, chief financial analyst at Bankrate.com.

Essentially, mortgage rates have hovered below 3.6% ever since the U.S. economy was rocked by widespread shutdowns to stem the spread of COVID-19, particularly in major metros such as Detroit and New York.

The average 30-year rate was 3.9% back in December and 4.54% back in late February 2019.

What’s possible: Mortgage rates could remain quite low for several weeks or months.

“I expect fixed mortgage rates to remain between 3% to 3.5% over the coming year,” said Mark Zandi, chief economist for Moody’s.

The catch, if you will, is that many bargain rates will be available mainly to borrowers with good credit, proof of income and enough equity built up in their homes as lenders try to limit their losses should a recession last far longer than many would expect.

What happens if your credit score is below 700?

Higher hurdles and tighter lending standards could prove to be a roadblock for some who would like to take advantage of lower rates, including small business owners and others who may have difficulty documenting their income.

“Credit has tightened notably for borrowers with credit scores below 700, those seeking a cash-out refinance, or for jumbo fixed-rate mortgages,” McBride said.

Jumbo loans, which often require larger down payments, apply to mortgages that exceed $510,400.

“Cash-out and jumbo fixed-rate mortgages are still available, but considerably less so and at a higher markup relative to a conforming, rate-and-term refinance.”

If you’re looking to refinance or take out a new mortgage, it’s increasingly important to make sure that you’ve checked your credit report for free at AnnualCreditReport.com, pay down your credit card debt, and stay clear of opening new credit cards. You want to make sure you pay on time every month.

Slowdown makes lenders cautious

More than 40 million American workers have filed for jobless claims since mid-March as restaurants, factories, stores and other places of business began to close in order to limit social contact and the spread of the virus.

Those high jobless rates — and the expectation that home values ultimately will drop or soften in the future — are driving some lenders to take a more cautious approach, according to Keith Gumbinger, a mortgage expert and vice president at HSH.com, a mortgage information website.

“Certainly, with risks on the rise,” Gumbinger said, “it’s to be expected that at least some lenders would be trying to limit their exposure to potential future loss.”

Even so, not all lenders are reacting the same way. “So,” he continued “if a consumer cannot find a lending response they need on one side of town they will need to keep looking.”

JPMorgan Chase, for example, now requires that customers who apply for a new mortgage must have a credit score of at least 700 and make a down payment equal to 20% of the home’s value. Chase also has stopped approving new home equity lines of credit.

Yet there are some exceptions: “We are still very committed to affordable lending,” said Charlene Lule, a Chase spokesperson said. “Our DreaMaker product was exempt from the temporary lending standard changes. This allows for as little as 3% down, broader credit score ranges, additional education incentives and home buyer grants.”

“Due to the economic uncertainty, we are making temporary changes that will allow us to more closely focus on serving our existing customers,” Lule said.

Wells Fargo has stopped doing cash-out refinancing and is no longer accepting applications for new home equity lines of credit.

Steve Carlson, vice president of corporate communications at Wells Fargo, said the changes serve the interests of customers for the long term, while addressing concerns related to health and safety, and credit and market risks.

Wells Fargo, he said, took into account “current market conditions and the uncertainty around the timing and scope of the anticipated economic recovery.”

“For example, we’ve stopped most interior appraisals in an effort to protect the health and safety of our customers, team members, service providers and communities,” he said.

Shopping around may be essential

Tony Abate, the Rochester branch manager at Ross Mortgage, said refinance lending is “definitely alive and well.” But he cautions that some consumers can expect a few hurdles.

“As a result of the pandemic, some types of mortgage financing have become somewhat more challenging to obtain,” he said.

“A homeowner who is looking to take cash out of the equity of their home may find that fewer lenders are willing to permit this, or they may encounter more restrictive requirements. However, this is not universal with all lenders.”

As a result, it may be even more important to check with more than one mortgage lender when exploring options.

Mark Heppard, senior loan officer for Supreme Lending in Farmington Hills, said some restrictions may be easing somewhat. But homeowners who want to tap into the equity that they’ve built up in their homes will need to recognize that some lenders aren’t doing those deals now. And you could face an even higher interest rate than normal.

In general, he said, the lending market may be improving slightly and reversing course from just a month or so ago.

“In fact, we are now able to do FHA loans for people with scores as low as 620 again, although the minimums were raised from 580 to 640 just weeks ago,” Heppard said.

Zandi, of Moody’s, said mortgage lending standards are currently still tighter than they were before the crisis but he noted that they are now only a modest impediment to home sales.

“The mortgage market has weathered the crisis relatively gracefully in large part because it is strongly supported by the federal government,” Zandi said.

“Two-thirds of single family mortgage originations are done by government-backed institutions, including Fannie Mae, Freddie Mac, FHA, VA and USDA. These institutions have not meaningfully tightened their underwriting.”

“And while lenders that sell their loans to these institutions have, it has been on the margin. The other one-third of lending done by banks and non-bank financial institutions has been more disrupted, but even here conditions are improving quickly,” Zandi said.

Tribune Wire

Recommended for you

(0) comments

Welcome to the discussion.

Keep it Clean. Please avoid obscene, vulgar, lewd, racist or sexually-oriented language.
PLEASE TURN OFF YOUR CAPS LOCK.
Don't Threaten. Threats of harming another person will not be tolerated.
Be Truthful. Don't knowingly lie about anyone or anything.
Be Nice. No racism, sexism or any sort of -ism that is degrading to another person.
Be Proactive. Use the 'Report' link on each comment to let us know of abusive posts.
Share with Us. We'd love to hear eyewitness accounts, the history behind an article.