Is mortgage credit really too tight since COVID-19?

Since the onset of COVID-19, the Twittersphere has been ripe with rumor and speculation that the financial requirements to qualify for a mortgage have become increasingly more rigorous since the crisis and this would put a damper on the housing market. 

Logan Mohtashami
Logan Mohtashami
Lead Analyst

It is true that the COVID-19 crisis did temporarily wreak havoc on the mortgage market. Case in point — the week of March 9 and the mortgage market meltdown. You may recall the precipitous drop in rates which resulted in a flood of refinance requests which amplified early pay off risk, mortgage margin calls, and the rapid rebounding of rates. 

Needless to say, all that drama from COVID-19 created significant stress in the mortgage market. As a result, many non-QM lenders left the market and FHA homebuyers with low FICO scores saw credit get tighter. The U.S. jumbo market loans saw some difficulty as well. Some lenders even stopped offering home equity lines.

While that all sounds pretty drastic and scary, at the end of the day this prevented only about 4.5%-6.2% of all purchase loans from closing of those that would have closed prior to the meltdown. This means that over 93% of the purchase loans that could have closed during the period of the record-breaking expansion still would have closed during the early part of the COVID crisis. This is because after 2010, the loan profiles of mortgage seekers before and during the COVID crisis have been, in a word, excellent– the best loan profiles that I have ever seen in my 24 years of lending experience.

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