Shopping around for mortgage lenders

Q: We wanted to buy a home this spring. We thought that based on our financial profile, we would qualify for a mortgage with a 680 credit score and not more than 5 percent down. Then, the coronavirus hit. Now when we speak with lenders, they look atusasifwehave two heads. What happened? A:You might think that mortgage borrowers today could get a better rate than just a few months ago. Figures from Freddie Mac show that the weekly mortgage rate averaged 3.72 percent at the start of January and 3.31 percent in mid-April. Instead, several problems have arisen. Low rates have never been available to every borrower. In late April, for example, myFICO. com reported that a borrower with a credit score of 760 and above could get a 30-year, $150,000 mortgage with a 2.97 percent annual percentage rate (APR). The same loan would have a 3.583 percent APR for someone with a 660 credit score. A borrower with strong credit would pay $630 a month for principal and interest, while the borrower with a low score would pay $681. That’s a difference of $51 a month or $612 a year. What’s happened is that the difference between pricing for a strong borrower and pricing for weaker borrowers has widened. “In the wake of the 2007–09 Great Recession,” explains the Urban Institute (UI), “it was hard for people with lessthan-perfect credit to secure a mortgage. This stood in stark contrast to the years leading up to the financial crisis when it was too easy to secure a mortgage. But in response to the Great Recession and the resulting restrictions and risks imposed through lawsuits and regulations, lenders became wary of lending to borrowers with anything less than pristine credit, and the mortgage credit box (or the availability of mortgages) contracted dramatically.” “Not surprisingly,” UI adds, “this public-healthturned-economic crisis is beginning to constrict the mortgage credit box again, threatening to return us to the 2010–13 period when only borrowers with nearly pristine credit could obtain a mortgage.” Why are lenders becoming more cautious? We have a sudden loss of tens of millions of jobs because of the coronavirus. There’s more risk in the marketplace. While home prices have generally held up during past recessions (the last one being a massive exception), the pandemic economy is unlike anything seen in modern times. Fallout in the mortgage marketplace has been enormous. According to Black Knight, more than 3.4 million homeowners had entered into COVID-19 mortgage forbearance plans as of late April. “This population,” said the company, “represents $754 billion in unpaid principal.” In the end, we have a coronavirus mortgage marketplace with very low rates for those with great credit, higher rates for those with lesser credit, and lenders who have become very cautious. Lenders now are likely to want higher scores, more down, and greater employment certainty when compared with 2019. Translation: There are low-rate mortgages out there, but credit availability has fallen substantially with the onset of the pandemic. For details and specifics, speak with local loan officers.