United Wholesale Mortgage, the largest U.S. wholesale lender, said it was removing an extra rule, or overlay, it implemented last month requiring a borrower’s employment to be re-verified on the day of closing.
The removal of the overlay applies to all loans, UWM said on Wednesday. Lenders can now use the regular employment verification process that allows the step to be done within 10 business days.
The overlay had been put in place as millions of Americans lost their job after state shutdowns aimed at stopping the spread of the COVID-19 virus led to more than 40 million claims for unemployment insurance since mid-March.
“We believe the job losses and the velocity of the job losses from the pandemic has slowed substantially,” Mat Ishbia, UWM’s CEO, said in an interview. “That’s why we made the change today. With the velocity slowing down, we didn’t think it needed to continue.”
Layoffs have slowed for eight consecutive weeks, according to Labor Department data on initial claims, as the unemployment insurance requests are known.
In addition, there are signs that American businesses are re-hiring some of the laid-off workers. Continuing claims that measure the number of people receiving unemployment benefits declined for the first time since the start of the pandemic during the week ended May 23, according to the government data.
As the COVID-19 pandemic plunged the nation into a recession, lenders tightened standards to protect themselves from potential defaults. The availability of mortgage credit in April fell to its lowest level since December 2014, according to a report from the Mortgage Bankers Association last month.
The MBA’s Mortgage Credit Availability Index fell to 133.5 in April, indicating the strictest standards in five years as lenders and mortgage investors worried bout the economic implications of the pandemic.
Overlays are aimed at protecting lenders who could be forced to buy back any mortgages that go into default or forbearance within the first one to three payments. That’s part of the deal they sign when they transfer eligible loans to middlemen who sell to companies who package them into bonds that are sold to investors.