JPMorgan Chase to tighten mortgage borrowing standards as economic outlook weakens

People applying for new mortgages will need a downpayment of 20% and a good credit score

The JP Morgan Chase corporate headquarters in New York. The biggest lender by assets in the US is toughening mortgage borrowing requirements as joblessness numbers have soared in recent weeks due to the measures pub in place to stop the spread of the coronavirus. ReutersShow less

JPMorgan Chase the largest lender in the US by assets, is raising borrowing standards this week for most new home loans as the bank moves to mitigate lending risk stemming from the coronavirus disruption.

From Tuesday, customers applying for a new mortgage will need a credit score of at least 700, and will be required to make a downpayment equal to 20 per cent of the home's value.

The change highlights how banks are quickly shifting gears to respond to the darkening US economic outlook and stress in the housing market, after measures to contain the virus put 16 million people out of work and plunged the country into recession.

"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 officer for JPMorgan's home lending business, told Reuters.

The bank was the fourth-largest US mortgage lender in 2019, according to industry publication Inside Mortgage Finance.

The changes should help JPMorgan reduce its exposure to borrowers who unexpectedly lose their job, suffer a decline in wages, or whose homes lose value. The bank said the change will also free up staff to handle a surge in mortgage refinance requests, which are taking longer to process due to staff working from home and non-essential businesses being closed.

Refinancing requests jumped to their highest level in more than a decade last month as average rates on 30-year, fixed-rate mortgages, the most popular home loan, fell to near record lows, according to data from the Mortgage Bankers Association (MBA).

JPMorgan would not disclose the current minimum requirements for its various mortgage products, but the average downpayment across the housing market is around 10 per cent, according to the MBA.

The new credit standards do not apply to JPMorgan's roughly four million existing mortgage customers, or to low and moderate income borrowers who qualify for its "DreaMaker" product, which requires a minimum 3 per cent downpayment and 620 credit score.

The US housing market had been on a steady footing earlier this year, but with a deepening recession and would-be homebuyers unable to view properties or close purchases due to social distancing measures, the health crisis now threatens to derail the sector.

The residential mortgage market is already under strain after borrower requests to delay mortgage payments rose 1,900 per cent in the second half of March, Reuters reported.

The National Association of Realtors last month said home sales could fall by around 10 per cent in the short-term, compared to historical sales for this time of year. A Federal Reserve March consumer survey said home prices were expected to grow 1.32 per cent over the year, the lowest reading since the survey began in 2013.