From an economic standpoint, the main question surrounding the spread of the coronavirus is just how long the country will be shut down and just how much damage that shutdown will cause to the economy.
One thing that is clear, however, is that the mortgage lending landscape is vastly different in early April than it was in early March. Certain segments of the business – namely government, non-QM, and jumbo loans – have dried up substantially as lenders pull back from loans that are seen as riskier than GSE loans.
And according to Federal Housing Finance Agency Director Mark Calabria, some of those changes may be sticking around for a while.
“Anybody’s housing price forecast right now should be taken with a grain of salt. And that’s no slight on forecasters,” Calabria told HousingWire this week.
“To me, I don’t see that as a bug. I see it as a feature,” Calabria continued. “We’re really at a point where nobody, there’s a wide range of possible outcomes for the housing market over the next six months. Given that uncertainty, I certainly think it’s appropriate for people to re-examine their underwriting standards.”
And that’s exactly what has already happened over the last few weeks.
The first domino that seemed to fall was non-QM lending. Late last month, many of the biggest lenders specializing in lending to borrowers outside the Qualified Mortgage lending box began pausing their activities due to uncertainty in the market.
Then, the Federal Housing Administration lending environment began to shift with many lenders raising their FHA requirements, thereby limiting the number of borrowers that were able to get an FHA mortgage.
More recently, many lenders have dialed back their jumbo lending as investor interest has dried up. Beyond that, a growing number of lenders are tightening lending standards as a record-breaking number of people are losing their jobs.
The reason for all these changes is the same; there’s far too much uncertainty in the market and lenders are uneasy about lending to borrowers whose credit profile isn’t “perfect.”
That’s much different from what the mortgage market experienced in recent years, with lending to borrowers who don’t fit tightly in the GSE credit box increasing substantially.
According to Calabria, that situation has played out numerous times before.
“This is the case every cycle, where you go a really long time and people convince themselves that, no, there is no more housing cycle and there’s no risk and we can all be highly leveraged,” Calabria said. “That happens every cycle. So, do I expect that kind of behavior to ever truly go away? Probably not.”
But Calabria said that the recent tightening in credit availability is a normal reaction to economic situations like this one.