March Jobless Claims 3.2 Million
4/2/2020 Jobless Claims 6.4 Million
4/9/2020 Jobless Claims
6.6 Million (Constraints to Consumer access – could have been higher)

Many mortgage originators are talking about FICO scores and DTI in the wake of the Covid-19 emergency. Whether it is apparent to mortgage originators or not, you can be assured the threat to the mortgage industry is not the more conservative program guidelines the industry is adopting; it is the Furloughs, Layoffs, and Terminations that will result from expense reduction strategies by those companies that shut their businesses down for our Country’s economic survival. The unemployment rate is going to spike over the next 30-60 days. Estimates indicate unemployment will reach 15% to 32%. In 1933 it was 24.9% which may foreshadow the potential impact unemployment will have on our economy. The peak unemployment during 2009 was only 10% and everyone remembers the defaults and the impact to the mortgage industry. The cause of the 2009 Great Recession? Risky unsustainable mortgage lending without regard for doing the “Right Thing”.

If you remember, everyone was on the option arm and sub-prime train during 2008-2009. Everyone sold “we have the programs to get you more buyers” etc. Defaults and the implosion that followed put a lot of great builders and mortgage professionals out of work.

This is different. Covid-19 will have a more severe impact for a shorter duration. My advice is do the right thing for your builder and realtor partners. This emergency will pass in 6 months or so and then you can add risk if you choose.

Job loss is going to be the biggest disruptor of mortgage closings and approvals over the next 3-6 months. The reason FICO and DTI is being adjusted industry wide is to narrow pipelines to borrowers who have a lower risk profile and better job stability.

The mortgage market has changed, and the bond and secondary markets are trying to process what the current normal is. Until there is visibility on the current normal and the Government can find the right level of MBS engagement, caution and complying with guidance is the safest path for your clients and partners.

Over promising only creates downstream risk for builder partners and realtors. Stating you can deliver programs that have overlays and unaffordable buy-downs in the hope of engineering a solution later, is not the right thing for a borrower or your partners. Being proactive today will stabilize pipelines and improve your probability of a successful closing tomorrow and 3 months from now. Employment status and probability of employment will be the underlying challenge as we overcome Covid-19 and restart our great economy.