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Jumbo Market Gets Even Tighter as Wells Fargo Pulls Out; Forbearances Again

Woman working from home during the COVID-19 crisis stands in her condo living room looking at her phone to check Wells Fargo jumbo ratesWELLS FARGO PULLS OUT OF JUMBO MARKET

Wells Fargo announced yesterday that it is pulling out of the jumbo mortgage market, sending shock waves through the industry (b/c Wells is such a force).

Many other jumbo lenders and investors (that buy jumbo loans) are following suit or tightening up their own internal policies in response to Wells Fargo’s announcement.

Most mortgage banks, including JVM, still have jumbo options available, BUT, the guidelines are much tighter and turn-times are now even slower b/c they will get even more business in response to Wells Fargo’s action.

In addition, jumbo 30-year fixed-rates are also much higher, making 5/1 and 7/1 ARMs much more viable options.

We are actually canceling some of our jumbo refinance loans b/c of the likelihood that we will have no buyers for those loans.

Mortgage banks survive solely and only if they can sell their loans after they fund them.

If they cannot find a buyer for loans that they fund, they risk enormous losses and quickly going out of business altogether.

JUMBO MARKET WILL LIKELY COME BACK

The Fed and the entire mortgage industry are working frantically to restore some order and stability.

While nobody knows for certain when stability will return, many industry experts believe we will see a return of some normalcy as soon as late April or May.

Hence, we are advising our jumbo refi borrowers to keep their files active while we wait for the jumbo market to come back to life.

Appraisals remain valid for several months too, so borrowers should not be concerned about having to get new appraisals in the near term.

FORBEARANCES AGAIN

I am still getting a lot of questions in regard to forbearances so I am going to repeat and update some information.

  • Who Qualifies for Forbearances? Anyone suffering financial hardship b/c of the COVID-19 crisis. Some servicers will take the borrower’s word but many will request “proof” of some sort. Borrowers who are not in financial peril should be careful about claiming they are, as they risk fraud charges.
  • How Do I Obtain a Forbearance? Borrowers need to contact their servicer and apply for it. They should not simply stop making payments.
  • Do I Have to Pay Back Missed Payments? Yes – without a doubt. Some servicers will want all of the missed payments repaid as soon as the forbearance ends; some will want to restructure entire loans; and some will want to set up repayment over a period of months. Servicers will most likely try to work out the repayment system when borrowers apply for forbearances.
  • Does It Matter What Type of Mortgage I Have? Yes. Forbearances will be easier to obtain for conforming (Fannie/Freddie), FHA and VA loans. Jumbo and non-QM borrowers, however, will have a more difficult time obtaining forbearances b/c the government does not have as much influence over those channels.
  • How Will a Forbearance Affect My Credit? If borrowers obtain a formal approval for a forbearance, it should not affect their credit. If borrowers just stop making payments, however, without getting an approval from their servicer, it will likely impact their credit – severely. There is a caveat here too: while credit reports will not show late payments when borrowers get their forbearances approved, future lenders will be able to see if a borrower obtained a forbearance in many cases, and that could affect credit decisions. This is something we saw with loan modifications after the 2008 crisis.
  • Should I Go Through With My Purchase or Refinance If I Am Likely to Seek a Forbearance? Absolutely not. Not only will it be extremely difficult for borrowers to obtain a formal forbearance approval for a recently funded loan, missing payments on newly funded loans put the originating lender in extreme financial peril.

Here is a short article from Nerd Wallet with additional info.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167