Mortgage companies have tightened their rules for loan approvals, and consumers are facing some of the toughest standards for getting a loan in years.
Bloomberg reports that many lenders have raised their credit score and down payment requirements even as interest rates continue at record lows. Some types of loans are no longer available, and that has effectively shut down a big chunk of the mortgage market.
Industry executives say that lenders have become more risk-averse as the COVID-19 pandemic continues to push people on to the unemployment lines, and moves by Congress to allow millions of borrowers to delay their payments. One model shows mortgage credit availability down more than 25 percent since the virus was first identified in the U.S.
The tighter rules may have an effect on home sales as stay-at-home orders are eased just as the spring and summer buying season gets underway. Michael Neal, a senior research associate at the Urban Institute Housing Finance Policy Center, told Bloomberg that before, mortgages were available for buyers with lower credit scores, but they would pay a higher interest rate. Now, he says “some people are just not going to get mortgages.”
Some lenders are demanding credit scores between 680 and 700, and a down payment of up to 20 percent may also be required, even on government-backed loans. Traditional refinances have also been affected.
The driving factor for these new restrictions seems to be the $2.2 trillion stimulus bill passed in March. The bill requires lenders to allow borrowers with mortgages guaranteed by the government to delay payments for as much as a year.