The Mortgage Loan Outlook for 2020

June 7, 2020
home equity
Mortgage interest rates have dropped to new lows – averaging 3.45% the first week of June. That’s wonderful news, but only for those who can qualify.

Depending upon which reports you read, mortgage loan availability is somewhere between 16% and 25% less now than it was just a few months ago.

Lenders are raising their loan requirements, with some now demanding 20% down and most raising the minimum credit score requirements to 680 or 700. Some banks have discontinued taking applications for home equity lines of credit and are refusing refinance requests.

Jumbo loans, which require a 10% to 20% down payment, are also being affected. Some borrowers have seen their jumbo loans cancelled mere days prior to the scheduled closing, simply because of a change in their bank’s lending policies.

Back in February, it was possible to get a loan with 3.5% down and a credit score of 580. The borrower paid higher interest than someone with a large down payment and good credit, but that has always been the case. Now those would-be borrowers are not likely to get a loan at all.

Why? Because banks are worried. The pandemic and resultant job losses caused many mortgage holders to seek forbearance, delaying their loan payments for several months. Meanwhile, even with less money coming into the bank through loan payments, the banks still must pay their bondholders. That creates a cash liquidity crunch.

Now they’re worried that new borrowers could face a similar situation and they’d be left with more non-performing loans.

2020 is a year of change and uncertainty, and this could also change. The May jobs report and the rising stock market could turn it all around again before the end of summer.

We’ll all have to wait and see.

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