By Jim Perksie
Historically low interest rates may not benefit many would-be homebuyers as the credit market is tightening considerably during the coronavirus pandemic.
Redfin announced Wednesday that its Mortgage Credit Availability Index dropped 16 percent in March and is at its lowest level in five years. The index measures how easy it is to get a home loan.
“Thousands of Americans who were priced out of the housing market due to the affordability crisis of the past decade might finally see homeownership as within reach, especially given historically-low mortgage rates. But unfortunately, they are now faced with another roadblock and may not be able to get a loan,” Redfin senior economist Sheharyar Bokhari said. “Home equity is the primary way for Americans to build wealth. It’s important that policymakers address this tightening of credit, as it has raised the barrier to homeownership.”
Redfin estimates that 25 percent of the loans written by Redfin Mortgage in the first quarter may not have been possible in the current environment, as investors who buy loans are more selective about who can access loans as millions of homeowners take advantage of forbearance.
The $2 trillion CARES Act includes a moratorium on foreclosures and the right to forbearance on federally backed mortgages. Forbearance allows borrowers to put off payments for at least six months if they suffer economic hardship during the pandemic.
The latest data released Monday by the Mortgage Bankers Association shows 6.99 percent of mortgage borrowers – or 3.5 million – were in forbearance as of April 19. March 2, roughly 0.25 percent of loans were in forbearance.
With 22 million Americans filing for unemployment and more borrowers seeking to put off payments via forbearance during the pandemic, the market may see credit tighten even further for the April report.
Redfin found that banks are shying away from jumbo loans (generally above $510,000) – with that segment of the mortgage market dropping 37 percent last month.
The tightening is impacting other borrowers as well. JPMorgan Chase raised its minimum credit score to 700and requires applicants to put 20 percent down – while other big banks won’t touch anything under 680. United Wholesale Mortgage CEO Mat Ishbia said his company is only offering loans to people with higher credit scores and demands an extra income verification.