If you don't follow the mortgage industry all that closely, this could get confusing fast. So we'll keep this at a high level — not for you, for me! But let me start by providing a resource that might be worth looking at right from the start. This video from NREP Daily is "an over-simplified explanation regarding what’s going on in the mortgage industry" right now due to the economic impact of the coronavirus pandemic. It does an amazing job of breaking down the mechanisms that are in play right now for those of us who want a pretty boiled-down version of the problem and want to understand how this could impact a global mobility program.
What’s unfolding in the mortgage market currently? Lending restrictions are tightening up as investors of mortgages look to protect themselves in this time of economic uncertainty that has been created by the coronavirus pandemic. In particular, this is causing the "jumbo mortgage" market to shrink. Buyers of these types of loans are too nervous, so many lenders are suspending these types of loans, meaning they are suddenly much harder to get.
What is a jumbo loan? Per this article by Ellen Chang from Bankrate, "Jumbo loans are mortgages for expensive homes that are above the limits set by the government agencies that back a wide swath of the home loans issued by U.S. lenders. The maximum for a conforming loan is $510,400 in most counties, as set by the Federal Housing Finance Agency."
What does this mean for relocating employees in your mobility program that are trying to sell their house or buy a new one? This situation may limit buyers for some of the higher priced sellers ($600K+ prices), as these buyers may be borrowing outside of the government-insured amount, causing lenders to be more cautious. Most relocating employees looking to purchase may need to put more money down to get their loan amounts within the insurable balance.
What can be done and what are the next steps? The reality is that homebuyers and homeowners who have not closed on their jumbo mortgage loan could face delays and other setbacks. Aside from delivering a higher down payment to bring down the amount of the mortgage, homeowners that live in cities where a jumbo loan is more the norm are likely to have limited options. Those seeking a jumbo loan will have to cast a wider net to find a lender who’s willing to underwrite the loan.
Our mortgage team, however, looks at each scenario locally. Each borrower's needs and qualifications are different, so we can work with them to analyze their specific criteria to present them with options on how they can structure their home purchase and make an informed decision based on what works best for them.
As we move past the pandemic and get more comfortable with the risks that exist, most experts agree — if you can hang in there, things should go back to normal before long.
The jumbo loan market is shrinking as some mortgage lenders are facing a liquidity crunch. It’s the perfect storm for lenders as millions of homeowners are seeking forbearances after losing their jobs from coronavirus shutdowns and investors who buy bundles of jumbo mortgages have exited the market.