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8 | M R EP O RT FEATURE W hen the COVID- 19 pandemic took root in the U.S. in March, the mortgage industry was initially apprehensive over the prospect of an economic shutdown. "No one had any idea as to what was going to happen with real estate appreciation or depre- ciation early on," recalled William J. Tessar, CEO at Civic Financial Services in Redondo Beach, California, adding that the worst of the industry's fears, thank- fully, did not materialize. "What manifested itself early on was that the real estate market was actually okay." While the housing market was spared the worst of the pan- demic's trauma, mortgage lending underwent some significant adjustments. Joel Kan, AVP of Economic & Industry Forecasting at the Mortgage Bankers Association, acknowledged that the pandemic changed the playing field in terms of credit availability. "Lenders have tightened credit," Kan said. "We're at our tightest credit supply since 2014 and 2015, and a lot of that tightening has been in jumbo and government." Kan noted that after the pandemic started to wreck the economy, lenders began to require "a little bit higher credit scores and a little bit lower LTV, relative to the pre-pandemic." But he also observed that the protocols put in place in the aftermath of the Great Recession proved problem- atic with the ongoing crisis. "There is certainly a lot more stringency in the underwriting process," he continued. "For the last few years, documentation and communication have been a prior- ity. We faced a problem in April and May when the lender needed to verify income or employment, but the borrower's employer was closed or working remotely." The Forbearance Factor U nderwriters also faced a new hurdle when a sudden wave of mortgage forbearance erupted as hundreds of thousands of Americans found themselves furloughed or laid off. One of the earliest federal initiatives to buffer the pandemic's financial trauma was the Coronavirus, Aid, Relief, and Economic Security (CARES) Act, which was signed into law on March 27. Under that law, homeowners with feder- ally backed mortgages who were financially impacted by the pan- demic could receive forbearance on all or part of their mortgage payments for up to 180 days. The CARES Act also offered qualified borrowers a forbearance extension for up to 180 days. "What underwriters are con- cerned about is people being in forbearance and it is not showing up on their credit report," said Rocke Andrews, broker-owner of Tucson-based Lending Arizona LLC and Past-President of the National Association of Mortgage Brokers. "Because the intent of the original legislation was that it doesn't adversely affect your credit. What underwriters are doing now is saying, 'Okay, if it doesn't show up late on your credit report, we want to get a payment history showing that you haven't missed any pay- ments, as well as canceled checks.' They're making sure about all that has been met." The CARES Act provision on forbearance created some problems that its authors may not have considered. "When the CARES Act came out, it granted forbearance with- out a proof of hardship," recalled Bill Lowman, President and CEO of American Pacific Mortgage in Roseville, California. "We saw lenders make some adjustments to their minimum FICO score–and it was somewhat product related. For example, on bond loans, we raised our minimum FICO score to 640 on bond loans—one reason was because our warehouse bank, where we funded those loans, raised their FICO score to 640. It takes a long time for those loans to get purchased, and if a bor- rower closed their loan and then asked for forbearance, a lender would not be able to sell that loan for a period of time because of the borrower being in forbear- ance." Lowman highlighted that bor- rowers employed in sectors that were especially hard-hit in the pandemic often created the great- est challenges for underwriters. "For example, someone in the hospitality industry that might have had great income when they showed you their 2019 W2," he said. "But for their work in 2020, their current income might be significantly less than what they were historically making because of the impact hospitality industry was taking and still continues to take, I would say the same is true for people that are working in restaurants. So, income and employment qualification for cer- tain jobs within certain industries became harder and lenders had to pay more attention to and scruti- nize more than before." Julie Davis, VP/National Underwriting Manager at Cherry Risk Assessment's New 'Playing Field' While the housing market was spared the worst of the pandemic's trauma, mortgage lending still underwent some significant adjustments. By Phil Hall