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Mortgage

Lenders get stricter as some borrowers think they don’t have to pay

Overlays are increasing to protect lenders from early defaults, buyback demands

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Standards for home loans are tightening by the hour as companies like United Wholesale Mortgage, the nation’s largest wholesale lender, beef up rules to ward off early defaults from people losing jobs because of the COVID-19 pandemic.

“I get as many as 10 emails a day from companies announcing new overlays – mostly for re-verification of employment,” said Mark Goldman, a loan officer with C2 Financial in San Diego. “All the lenders want to make sure borrowers are still working and still have cash flow.”

Almost 14 million Americans have filed for unemployment in the last two weeks after businesses were closed and workers told to stay at home by states scrambling to reduce the spread of COVID-19. That record number doesn’t include people who lost their jobs and have been unable to get through to overwhelmed state employment offices to make a benefit claim.

As lenders tightened standards, an index measuring the availability of mortgage credit in March crashed to the lowest level since June 2015, led by a pull-back in jumbo and non-QM lending, the Mortgage Bankers Association said in a Thursday report.

MBA’s Mortgage Credit Availability Index fell 16% led by a 24% plunge in jumbo and non-QM mortgages. A drop in the index means rules are stricter and mortgages are harder to get.

So far, the hit hasn’t been as bad for mortgages backed by Fannie Mae and Freddie Mac. The index measuring the availability of conforming loans dipped 2.7%.

But that doesn’t mean lenders aren’t being more careful with those loans. Many now require re-verification of employment within 24 hours of closing, and some are asking borrowers to sign an affidavit saying they have not been notified of a pending layoff or income reduction.

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