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JPMorgan Chase Tightens Home Borrowing Standards

By Bram Berkowitz - Updated Apr 13, 2020 at 10:10AM

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The bank recently said most new home loans will only be given to borrowers with a 700 credit score that make a 20% downpayment.

The country's largest bank is raising borrowing standards on home loans in order to reduce future exposure to an economic downturn brought on by the coronavirus pandemic.

JPMorgan Chase (JPM 0.95%) said customers applying for a mortgage will now need to have a credit score of 700 or above and make a 20% downpayment to qualify for a home loan, according to Reuters.

The change in lending criteria does not apply to existing mortgage customers, or to low- and moderate-income borrowers that may qualify for a mortgage with a lower credit score and much smaller downpayment.

JPMorgan Chase

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As JPMorgan grants mortgage deferments and extends lines of credit to business customers impacted by social distancing, appetite for additional risk will be small, especially with unemployment rising past 16 million people last week.

Additionally, the bank said the move will help free up staff to deal with a surge in refinancing activity that has resulted from lower interest rates.

If other banks follow JPMorgan's lead, the housing market could shift dramatically in future months.

Typically, lower mortgage rates increase buying activity because borrowers can purchase a home and get lower monthly interest rates. A flood of borrowers can create a seller's market with more demand on the buy side, obviously depending on the specific market.

However, if banks get more strict with lending standards, there will be less buyers in the market and potentially less competition for available homes for sale. That could result in a shift to a buyers market for at least a period of time.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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