COVID-19

Mortgages are still cheap, if you can get one

Amy Scott Apr 20, 2020
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Borrowers are finding it harder to qualify for a mortgage. Joe Raedle/Getty Images
COVID-19

Mortgages are still cheap, if you can get one

Amy Scott Apr 20, 2020
Borrowers are finding it harder to qualify for a mortgage. Joe Raedle/Getty Images
HTML EMBED:
COPY

Millie Ruiz-Wagner is a mortgage lender in the Chicago area. Just weeks ago, a 580 credit score, out of a maximum 850, was good enough to qualify for a mortgage. These days she’s not seeing many loans approved under 640.

“I got caught with people who were preapproved with credit scores under 640, and I had to stop, regroup, help them fix their credit so they can get back in the buying market,” she said.

People do still want to buy homes, and even more people want to refinance existing mortgages, to take advantage of near-record-low interest rates. As of last week, the average interest rate on a 30-year mortgage was 3.31%, according to Freddie Mac.

But Joel Kan, an economic forecaster at the Mortgage Bankers Association, said that’s getting harder to do. The group’s Mortgage Credit Availability Index fell last month to its lowest level in five years, and it’s likely to get worse.

“The March numbers were really only a reflection of tightening in the last two weeks of the month,” Kan said. “With the gloomier economic outlook and a full month’s worth of data in April, I think we can expect more conservative lending and thus a decline in credit supply.”

According to data firm Black Knight, nearly 3 million borrowers have delayed their mortgage payments through COVID-19-related forbearance plans. That leaves lenders with less money — and less confidence — to make new loans, said Michael Neal, a senior research associate with the Urban Institute.

For potential borrowers, he said, “You’re less able to secure a mortgage, and if you are, you’re going to pay a much higher mortgage rate.” That could especially hurt minority and younger borrowers “because they typically have lower credit scores.”

It’s not just credit scores getting a closer look, said Lana Jern, a broker at Uptown Mortgage in Denver. Lenders are rejecting certain sources of income and asking for additional documentation, she said. One lender recently required a client to prove that his tenants had paid their rent in March and April, something Jern had never seen.

“It’s their prerogative, of course, but some of it I think is a little overreactive,” she said. “Then again, it’s not my money.”

Tighter credit standards are likely to further slow home sales, already under strain from stay-at-home orders and mounting job losses. Maryland-based builder Jeff Caruso, owner of Caruso Homes, said some of his clients have run into trouble getting financing.

“I would say 8 to 10 percent now are looking at credit issues, trying to increase their credit scores because of these new requirements,” he said. “That’s definitely affecting our homes under construction and our new home sales.”

COVID-19 Economy FAQs

Are people still waiting for unemployment payments?

Yes. There is no way to know exactly how many people have been waiting for months and are still not getting unemployment, because states do not have a good system in place for tracking that kind of data, according to Andrew Stettner of The Century Foundation. But by his own calculations, only about 60% of people who have applied for benefits are currently receiving them. That means there are millions still waiting. Read more here on what they are doing about it.

Are we going to see another wave of grocery store shortages?

Well, public health officials are warning that we could see a second wave of the virus before the end of the year. And this time retailers want to be prepared if there’s high demand for certain products. But they can’t rely totally on predictive modeling. People’s shopping habits have ebbed and flowed depending on the state of COVID-19 cases or lockdowns. So, grocers are going to have to trust their guts.

What’s going to happen to retailers, especially with the holiday shopping season approaching?

A report out Tuesday from the accounting consultancy BDO USA said 29 big retailers filed for bankruptcy protection through August. And if bankruptcies continue at that pace, the number could rival the bankruptcies of 2010, after the Great Recession. For retailers, the last three months of this year will be even more critical than usual for their survival as they look for some hope around the holidays.

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