JPMorgan Chase has tightened its lending standards for first mortgages in the wake of the coronavirus, citing concerns about the ability of many new borrowers to make their payments in a crumbling economy.
Beginning Tuesday, April 14, the bank's minimum credit score for a new mortgage is 700 and down payments must be at least 20%. This after jobless claims soared to unprecedented heights nationally for a third straight week.
"Due to the economic uncertainty, we are making temporary changes that will allow us to more closely focus on serving our existing customers," Amy Bonitatibus, chief marketing and communications officer for the big bank's home lending business, told Reuters in an article posted on Friday, April 10.
The move not only reduces risk from new loans for first mortgages, the bank said, but frees up resources to handle the surge of refinancing business the bank is handling with a staff now largely working from home and with third-party partners who may be shut down completely.
JPMorgan Chase, one of the largest lenders in America, did not say what its average credit score for new mortgages had been, Reuters reported, but did say that its 4 million existing mortgage holders will not be affected, nor will its loan product for qualified low- to moderate-income borrowers that carries a 3% down payment minimum and a 620 credit score.
Credit availability being crunched
JPMorgan Chase's move came as the Mortgage Bankers Association (MBA) reported a sharp decrease in its Mortgage Credit Availability Index. The MBA said its measure of mortgage credit supply fell by 16.1% to 152.1 in March, benchmarked to 100 in March 2012 and the lowest since June 2015, and that the decline in availability occurred across all loan types.
Joel Kan, the trade group's associate vice president of economic and industry forecasting, specifically cited reduced availability of loans for applicants with lower credit scores and higher loan-to-value ratios as well as jumbo loans and non-qualified mortgages as the reasons for the index slump.
"Lenders are making credit criteria changes to account for the increased likelihood of forbearance and defaults, as well as higher costs," Kan said in the MBA's release of its latest affordability index on Thursday, April 9.