A recent change in lending could impact real estate investors, especially if more lenders follow suit. Over the weekend, JPMorgan Chase stopped accepting HELOC applications. The bank posted the notice on its website saying it’s a temporary suspension due to the current economic uncertainty created by COVID-19. (1) Lenders have also been tightening loan standards.
Chase says it will continue to review already-submitted applications for home equity lines of credit, and HELOCs that have already been issued are not affected. But investors who might want to jump on a real estate buying opportunity by tapping into their home equity, face a shrinking pool of funding options.
Tighter Lending Standards
Many lenders have already tightened their underwriting standards for new home loans, including Chase. (2) It raised the minimum credit score to 700 to buy a home, and for most borrowers, it’s requiring a full 20% down payment. Those requirements also apply to refinancing on non-Chase mortgages. The old requirements are reportedly still in effect for refis on loans that are already in the Chase portfolio or are being serviced by Chase.
This is a temporary change, according to Chase lending officers. The same goes for other lenders, like United Wholesale Mortgage which requires a reverification of employment the day the loan is scheduled to close. Wells Fargo and US Bank have also raised their minimum credit score. It’s now 680 for those two banks. Flagstar Bank, which offered loans to people with scores as low as 580, has raised it to 640.
According to Bankrate, several lenders have also stopped offering FHA loans. (3) Better.com is one of them, along with Navy Federal Credit Union. A spokesperson for Navy Federal says they are hoping to offer them again next year, but that’s not something they can confirm right now. Better.com still offers jumbo loans, but requires a lower LTV of 80% or less. So you might be able to find a lender that suits your needs if you look around.
Lenders that offer non-qualifying loans have also become scarce, along with jumbo loans. The bottom line — credit has suddenly gotten tough to find. David Lazowski of the Fairway Independent Mortgage Corporation says, “Credit requirements have gotten tighter across the board. Lenders are raising credit score requirements by 100 points.” Experian says the average credit score in 2019 was 703, so you don’t have to dip much below average to be disqualified.
Mortgage Credit Supply
The mortgage credit supply has fallen to its lowest level since June of 2015. According to the Mortgage Credit Availability Index by the Mortgage Bankers Association, it fell 16% in March. MBA’s Joel Kan says, “The month’s release highlights the large retreat from jumbo and non-QM investors due to a sharp drop in liquidity. Lenders are making credit criteria changes to account for the increased likelihood of forbearance and defaults, as well as higher costs.”
Bankrate reports that lenders are also running into roadblocks trying to verify employment. Vast number of employees have suddenly started working from home, and that’s making it difficult to locate someone who can verify the job status of another employee.
Lending Activity Has Increased
This new lending environment might make it tougher to get a loan or tap into home equity for some people, but it hasn’t kept qualified borrowers away. The Mortgage Bankers Association says that applications increased 7.3% for the week ending April 10th, compared to the previous week. (4) According to Freddie Mac, the average 30-year fixed-rate mortgage is now down to 3.45%. Refinance applications were also 10% higher.
The tight lending market could also provide advantages for real estate investors and landlords. If lenders are issuing fewer home loans at the lower end of the scale, that could push rental demand higher. And with the pandemic accentuating the need for social distancing, single-family homes may be a more desirable option for renters.
If you are an investor who’s not worried about getting a loan or a HELOC, you may also face less competition when you do find a deal. And HELOCs are still available from many lenders, at least for the time being.
(3) Bankrate Article