In another major turn of events during the COVID-19 pandemic, Michigan-based Flagstar Bank has ceased funding most mortgages that are not backed by the government. One of the country's largest lenders to mortgage providers, this move means mortgage lenders will no longer be able to borrow from Flagstar for nontraditional (non-qualified, stated income, jumbo, etc.) mortgages, and that even those offering government-backed mortgages will only be able to borrow 95% of the original amount. The decision to stop this funding leaves a massive gap for many people, especially the self-employed. Flagstar is known as a "warehouse lender," and provides funding for a range of mortgage companies. Now, however, there is an entire cross-section of would be borrowers that won't be able to secure the loans they need to buy homes. Even though nontraditional mortgages only make up a small part of the overall industry, it is a growing market, right along with the modern "gig economy."
A spokesperson for Flagstart Bank cited declining market conditions as the driving force behind the change, and was adamant that the financial institution is "as committed as ever" to existing warehouse customers.
The decision to stop funding nontraditional mortgages may stem from the instability of the current American workforce, as businesses are shuttering during shelter in place orders, unemployment is rising, and some small businesses are closing permanently. Flagstar has not been clear about their reasoning, but the current economic uncertainty is a likely cause.
Uncertainty continues to mount in these strange times, and while Flagstar's bold choice is going to leave some people unable to find the right mortgages for their unique scenario, there is some relief in other actions being taken by lenders, the Federal Housing Administration, and other government and non-government entities. It's unclear whether Flagstar Bank's change in funding is temporary or permanent, but as with so many things during the coronavirus crisis, time will tell. If you have a nontraditional mortgage in progress, call your lender right away to see if Flagstar is involved in your funding. If the warehouse lender has already committed to your mortgage, you should be in the clear - but it can't hurt to check for yourself!