I’ve heard “I didn’t think of that” from several real estate professionals lately. Time to wake up. The COVID-19 virus scenario is going to put purchase loans and refinances at risk in several ways.
The Ability to Repay Act portion of the Dodd Frank Regulations requires that the lender of a mortgage assess a borrower’s income history, and solid at the time of funding and will be ongoing into the foreseeable future.
Prior income history is obviously not the issue. But now due to the virus and government “Stay at Home” order, the continuity of the borrower’s income may now affected. What’s the job stability look like going forward, and can the borrower’s employment be verified with a 3rd party (HR dept, etc) on a business phone number?
Presently many employee’s hours have been cut back, or their jobs can’t be performed in their normal capacity. We don’t know how long this is going to last. Underwriter’s have to make sure the income is going to meet the debt to income criteria… or more critically “will that company or job even exist after the crisis is over?”
Employment is generally verified a couple times during a loan process. Even with a pre-crisis approved loan, now with the “stay at home” order in place, the call by underwriting to the employer right before funding can be a problem. If HR or authorized representative isn’t working at the office, but at home, the verification on a “non-company business line” won’t meet Freddie / Fannie criteria.
Appraisals can also be an issue. Legally appraisers physically going to inspect a property are not considered an “essential tasks”. Essential for the loan or transaction, but not according to the government criteria.
If assets from a stock portfolio was going to be used towards a purchase, or used as reserves for a refinance, the recent 30% drop in the stock market may put a wrench in the loan.
Lenders and Appraisal Management Companies want to make the loans. They are presently evaluating their options. This virus scenario is new, and a moving target. I’m staying in touch with many of my wholesale lenders, to confirm how they’re approaching the guidelines.
Some real estate transactions already in escrow won’t close. Aside from the underwriting criteria, some buyer’s won’t want to close because of economic fear.
Loan pre-approvals are essentially obsolete, if generated with pre-“Stay at Home” criteria.
We are all affected by this crisis. How long will this last? The Governor doesn’t have a deadline. How deep will the economic damage be? What will happen to the real estate market? We’ll know more as time goes by, but this is not good.
Be safe and wishing you good health.
If you are in the Los Angeles area, have any questions or real estate sales or financing needs, feel free in contacting me
Ron Henderson GRI, RECS, CIAS
President/Broker
Multi Real Estate Services, Inc.
Gov’t Affairs Chair – California Association of Mortgage Professionals (2017-2018)
Chairman – OutWest Marketing Meeting (Real Estate Education)
BRE #00905793 NMLS #310358
www.mres.com
ronh@mres.com
Specialist in the Art of Real Estate Sales and Finance
Real Estate market, mortgage rates, Los Angeles, San Fernando Valley, Conejo Valley, Simi Valley, Woodland Hills, West Hills, Calabasas, Chatsworth
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