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Mortgage Borrowing Standards
American Middle Class

Homebuyers Should Not Worry about Strict Mortgage Borrowing Standards

Mortgage lenders expediently start implementing strict mortgage borrowing standards.  JPMorgan Chase announced last week that beginning April 14, 2020, new customers applying for a new mortgage will need a credit score of at least 700, and will be required to make a down payment equal to 20 percent of the home’s value.  Many other lenders are also raising their standards.

Potential homebuyers need not be worried about the sudden tightening of mortgage lending standards because the lenders’ decision is temporary.  Interest rates are still at historic lows, and they will remain low for the foreseeable future.

America big banks are embracing significant loan losses due to the COVID-19 pandemic. Once the coronavirus is contained, mortgage lenders will quickly revert their temporary strict mortgage borrowing standards.

Rough First Quarter Earnings for America Big banks

JPMorgan Chase, Bank of America, and Goldman Sachs all posted sharp drops in first-quarter profits. Three of America’s biggest banks saw their profits tumbled 46, 45, and 69 percent, respectively.

The coronavirus pandemic has impacted all businesses and industries.  With 22 million Americans lost their jobs in one month, it’s standard business practice for those financial institutions to start evaluating and controlling their credit risk.

The Forbearance of Residential Mortgage Loan Payments

Potential homebuyers who are currently on the market for a home might benefit from postponing their purchase if they can.

The Forbearance of Residential Mortgage Loan Payments is the provisions from the Coronavirus Aid, Relief, and Economic Security (CARES) Act that lets homeowners who are experiencing trouble making their mortgage payments to delay their federally backed mortgage payments up to 12 months.

According to the Mortgage Bankers Association, nearly 4 percent of all mortgages were in forbearance in the week ending April 5.  The CARES Act does not stipulate how those deferred mortgages will be handled once the virus is contained. That uncertainty could result in millions of homes being foreclosed.

An increase in foreclosure might end up being one of the unintended consequences of all those mortgage forbearance requests.

Interest rates will remain low for the foreseeable future.  Therefore, mortgage lenders will start loosening their lending standards the moment there is a treatment, a vaccine, or both for COVID-19.  Potential homebuyers should wait a few months and see how the housing market plays out.

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