Underwriting Changes: COVID-19

In the last two weeks loan underwriting standards have been altered in response to market uncertainty surrounding COVID-19. This trend appears most common amongst fringe loan programs. To quote one lender: “If an applicant was already risky, the loan they were seeking has or likely will be pulled.”

FHA and jumbo loan are experiencing the bulk of the changes. Every lender has different standards but generally speaking the minimum FICO score for FHA and conventional loans has increased from around 580 to 620, applicants for these programs are no longer eligible for credit re-runs, and applicants at the minimum threshold are required to have around 3 months liquid reserves on hand at closing.

Some lenders have completely retracted jumbo loans, defined as loans with initial balances in excess of $331,760 in Lane county or $510,400 in Multnomah county, with down payments of 10% or less. The floor has been increased from 10% to 15%. Historically most jumbo loan applicants put at least 20% down because of the discount received on rates making a change in application volume for these loans unlikely.

Fortunately, as a percentage of total loans originated, jumbo loans accounted for just 4% of the market in 2019 while FHA loans accounted for 13%. Conventional loans with LTV’s greater than 95% made up almost 60% of the market in 2018.