**Mortgage Banking Update During Corona Virus**

We have felt a lot of pain in the mortgage industry to say the least, but it’s still nothing compared those families who are suffering losses and the first responders who are trying to save life after life for those who are struggling with Covid-19.

Unfortunately the mortgage business has seen a significant reduction in appetite for risk due to the unfolding economic uncertainty from the effects of the corona virus (Covid-19) pandemic.

The cause of the crunch is multi-faceted, first being the already existing cash crunch that was created with the unprecedented amount of recent refinances. As good as this may sound for lenders, (it was great for us), for those servicing loans it can put a hurt on their books when mortgages get refinanced that are less than 3 years old. They don’t recoup the funds they paid for the right to service the loans until about year 3, and in the FED’s attempt to lower rates and keep things cheap for borrowers, mortgage servicing institutions found many loans were being refinanced that were less than a year old. This created a strain for their books.

To further that strain they were and are now faced with the prospect of a large portion of the American work force being unemployed or becoming unemployed. When financing government loans they are on the hook for the payment these borrowers are supposed to make but possibly can’t. Government loans include FHA, USDA, and VA mortgages. 

Our bank would routinely finance mortgages with a 600 credit score and in some cases below, because investor pricing and appetite was there. It is no longer there. Minimum credit scores for government mortgages have gone up to 660 and may increase to 680. 

We do have outlets to broker mortgages with lower scores in some cases, so we are actively still trying to adapt to changing lending landscape. 

There is some risk to brokers continuing to offer financing lower credit scores because they will be on the hook if those borrowers default, so they are really lending at their own risk. They may in fact be lending just to stay in business. That doesn’t mean that even though they are offering mortgages at a lower score requirement that there isn’t a significant cost for that rate. 

In the meantime we have been working on getting even better conventional financing rates and are now selling directly to Fannie Mae. With conventional financing you can still buy with as little as 3% down for first time home buyers.

Our main focus is to still close loans for our borrowers and referral partners! Its not clear how long this tightening in risk appetite will last but however long it lasts we will still be doing mortgages! Our bank is financially sound!

It is possible the Federal Reserve will step in to provide some assurance for mortgage servicing institutions that will open up financing for lower scores so stay tuned!!