I’ve previously mentioned that COVID-19 and the current economic downturn have resulted in an increase in mortgage forbearance requests. But what about mortgage applications? Interestingly, even as fewer people are able to pay their mortgages, people are still applying for mortgages, looking to take advantage of the current low interest rates on mortgage loans. And getting rejected at a much higher rate.
Lenders will always want to ensure that people are able to pay back the money they borrow. Obviously if the borrower has a mortgage in forbearance, well, that borrower doesn’t stand a great chance of being able to pay back a new mortgage. But even beyond that, lenders have been tightening restrictions in the wake of lessened economic stability. They are requiring higher credit scores, larger down payments, and more savings. Someone who was largely unaffected by the economic downturn may think they have a good chance at getting their mortgage loan approved. Not necessarily, if they were basing their expectations on old lender restrictions. Lenders are going to need to find the right balance between encouraging borrowers — since that’s how they make their money — and avoiding risky lending practices.