There’s been an uptick in the number of mortgage loans falling out as they approach closing — even up to the day of closing. That’s because jobless claims doubled to their all-time high in just a matter of weeks, and borrowers who were employed at the start of their loan process may have lost their jobs very recently.
A total of 6.65 million people filed jobless claims in the week ended March 28, the Labor Department said on Thursday. That’s up from the prior record of 3.31 million for the previous week, which was revised upward.
To manage the surging number of recently unemployed borrowers, United Wholesale Mortgage has tightened its underwriting standards on verifying income and employment, re-verifying employment status on the day of closing.
“We’re doing them again right before closing to make sure that people still have jobs, because people are losing jobs at such an alarming rate right now,” UWM CEO Mat Ishbia told HousingWire. “And so we put an extra process in place, which most people actually appreciate and recognize, but some people probably don’t love it.”
Under regulatory guidelines, it is acceptable to verify employment up to 10 days before closing, but UWM is operating out of an abundance of caution.
“It’s a little bit less business because we put a couple overlays in place to protect in this unprecedented time,” he said. “I think all lenders are doing that. I want to do more loans. But I’m not going to do more loans if they’re unemployed; we’re just doing prudent underwriting.”
Ishbia said that after UWM implemented these standards, other lenders quickly followed suit. In fact, he said he expects that over the next 90 days, every lender will be following these standards.
According to the company, adding this extra step has not slowed down their process or time to close. Ishbia said that currently about 7% of its staff, or 400 of his 5,800 employees, are focused solely on VOE.
“It’s not slowing down the process at all, we’re closing loans on average about 15 days or less,” he said.
And as lenders are already beginning to adopt tighter protocols, Ishbia said this underwriting standard is likely to become widespread.
“I think the key here is UWM is the first one out with prudent underwriting standards that might become the new norm,” he said.