Wednesday, April 15, 2020

A Banker, a Builder and a Customer Walk Into a Bar

In the good old days, actually just 2 months ago, when a banker, a builder and their customer walked into a bar it was to celebrate the financing, construction and occupancy of the customer’s new home.

Today they would visit that same bar to drown their sorrows because the banking industry just tightened their lending restrictions to the point that 60% of new home buyers will be locked out of obtaining a mortgage.

On Tuesday, April 14, 2020, many banks across the country raised the bar on financing a new home to 20% down payment and a credit score of 720.

In just the time it took to shut down our nation’s economy to the point the United States is beginning to look and feel like a socialist country, the nation’s banking system has effectively excluded anyone not meeting their new stringent mortgage requirements.

An entire generation of Millennials, many of whom were starting to buy new homes and condominiums, were shut out of the new home market in one day. Not only do the vast majority of them not have 20% down, millions of them are now either unemployed or working from home fearing their job may not be there when the Post Covid-19 crisis ends.

However, the banks did add a caveat that this is a temporary situation. Does that mean they will loosen those restrictions after the crisis? The big question then becomes when?

If the banks wait even six months to ease restrictions back to pre-COVID-19 levels, the modular housing industry will have lost the primary buying season for Fall and Winter housing starts pushing many builders out of business, maybe permanently.

So what about FHA home financing requirements? The official minimum of FHA loans—as set out by the Department of Housing and Urban Development—is actually 580. If a buyer can make a 10% down payment, it’s just 500.

But those are only minimums to qualify for FHA insurance. Lenders set their own credit score requirements based on how much risk they’re willing to take on. New FHA FICO minimum is now 680 for many lenders —well above HUD’s established floor.

Let’s hope the bars reopen so all those bankers, builders and their customers can drown their sorrows together instead of having to do it sheltered alone in their basements.

Gary Fleisher is a housing veteran,
editor/writer of Modular Home Builder blog
and industry speaker/consultant. 


James R said...

Coach, I always like reading your stuff but if this is correct I just may not be in business much longer. I have 2 signed contracts neither of which have building permits. If the banks require them to apply again, this could be a mess. I am finishing up a house and that draw will be the last I see for quite a while.

I haven't talked to a new buyer in a month because I can't have meetings in my office. And don't tell me I should Zoom. It's just not the same as face to face.

At 57 there are not a lot of places that will hire new home builders.

Unknown said...

Hey James, I'm right there and looking for a job currently. But I know you and I have seen plenty of experiences that hopefully give us the resources that we need to overcome the current challenges. Importantly, I think it's important to get your voice heard in places that are making the decisions currently & within your sphere. Not sure what state you're in but that's been a new revelation for a lot of folks, as far as what a governor controls. God bless you, all the best.