Mortgage rates rise slightly as some lenders tighten restrictions on who qualifies for a home loan

Mortgage rates rose slightly this week – an indication that mortgage companies are changing their lending operations in response to the coronavirus.

The 30-year fixed rate mortgage averaged 3.33% in the week ending April 16, which is a two basis point increase from a week ago, Freddie Mac FMCC,
reported Thursday.

The 15-year fixed rate mortgage rose six basis points to an average of 2.86%. The 5-year Treasury-indexed variable-rate hybrid mortgage, meanwhile, fell six basis points over the past week, averaging 3.28%.

“Lenders rate loans based on the higher risk they take on.”

– George Ratiu, Senior Economist at

Mortgage rates rose this week despite the yield on the 10-year T-bill TMUBMUSD10Y,
, which fell in response to high volatility in global energy markets. Historically, mortgage rates have roughly followed the direction of long-term bond yields, but that relationship has weakened amid the coronavirus crisis.

“While investors have kept bond rates at historic levels below 1.0%, mortgage rates have not followed a downward curve due to banks and lenders rating loans for higher risk. which they assume by increasing the FICO FICO,
scores and down payment requirements, ”said George Ratiu, senior economist at

Also see:Fannie Mae: Home sales will drop 15% in 2020 because of the coronavirus, but what will happen to house prices?

Banks impose stricter standards on new borrowers

The rate hike also comes as lenders rethink who they will lend to amid the coronavirus pandemic. “Lenders are announcing stricter underwriting requirements and dropping some products altogether,” said Tendayi Kapfidze, chief economist at LendingTree TREE,
. “This means that many potential buyers and those looking to refinance will have more difficulty accessing credit. “

JPMorgan JPM,
one of the largest lenders in the country, has increased the requirements borrowers must meet to be eligible for most new home loans, Reuters first reported last week. Customers will need a credit score of at least 700 to qualify and must have saved funds equivalent to a 20% down payment.

Amy Bonitatibus, marketing director for JPMorgan Chase’s mortgage business, told Reuters the changes were made “due to economic uncertainty” so the bank could “focus more on serving our existing customers “.

Read more:Mortgage industry faces crisis from coronavirus – and borrowers could fall through the cracks

Other mortgage companies have followed suit by toughening up some requirements. And Flagstar FBC,
+ 0.06%
what was the 10th largest mortgage lender in the countryy By total loan volume as of 2018, increased the minimum credit score for new FHA, VA and USDA purchase loans to 680. For withdrawal refinances, the bank now requires borrowers to have a credit rating of credit of at least 700.

Depending on the type of loan, this equates to a minimum credit score increase of between 20 and 40 points, said Kristy Fercho, executive vice president and president of mortgages at Flagstar Bank.

“JPMorgan is one of the primary market initiators and in some ways sets the standard for what other lenders are going to do,” said Fercho, who is also the vice president of the Mortgage Banker Association. “And so you are careful when JPMorgan makes changes like that. “

If a lender doesn’t make changes after one of the biggest companies in the industry does, Fercho said, it risks attracting financially bad borrowers who might be more likely to default.

“JP Morgan is one of the major market initiators and in some ways is setting the standard for what other lenders are going to do. “

– Kristy Fercho, President of Mortgages at Flagstar Bank

The Federal Housing Finance Agency announced this week that Fannie Mae FNMA,
and Freddie Mac could buy loans with forbearance – a sign that lenders have closed mortgages, only for borrowers to stop paying soon due to loss of income from coronavirus.

Beyond imposing stricter standards in terms of credit scores and down payments, mortgage lenders have taken other steps to prevent the possibility of taking out risky home loans.

As part of the underwriting process, lenders are required to verify a borrower’s employment. This is usually done around 10 days before the loan closes, but some lenders are now moving towards this close day verification in response to the tumultuous economic landscape.

“People are losing their jobs at such an alarming rate across America that we want to verify on shutdown day that they are still employed,” said Mat Ishbia, president and CEO of United Wholesale Mortgage.

Also see:These US real estate markets are most vulnerable to a coronavirus slowdown

In addition, United Wholesale Mortgage and Wells Fargo WFC,
set up different reserve requirements for independent borrowers.

Lenders stress that these changes are temporary and that time will tell how quickly mortgage companies will resume their normal operations. “You just want to make sure that you are preparing people for success so that they can stay in this house,” Fercho said.

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