Lenders no longer Cash out Refi. WHY?

Question

To those of you in lending,

I was told by a friend who’s seeking to get a cash out refi @ TIAA that they are no longer providing cash out refi’s.

My friend was seeking a Fannie Mae loan / cash out refi, high credit scores, plenty of income.Any idea why lenders are now refusing to cash out refi?

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Jon Q. · Answer

Mortgage rates dropped to near record lows. The 30-year fixed mortgage averages 3.58 percent nationally, according to Bankrate data. Mortgage refinance rates, are also low, with the average 30-year fixed refinance rate at 3.64 percent.

Low refinance rates have triggered a wave in applications. The Mortgage Bankers Association’s Refinance Index, which tracks refinance applications, rose 10 percent for the week ending April 10 compared with the previous week. The index is 192 percent higher over the same week a year ago.

Cash-out refinances reached a 10-year high in the fourth quarter of 2019, the latest figures available, according to Black Knight. Homeowners drew more than $41 billion in equity out of their homes in the quarter.

The surge of refinance applications has overwhelmed some mortgage lenders. But the backup appears to be slowly easing as lenders adapt to new ways of doing businesses under stay-at-home restrictions. Regulators have also relaxed rules to help consumers. The Federal Reserve System announced on April 15 that lenders will be allowed to postpone appraisals for 120 days after new mortgages and refinances close. In addition, 23 states now allow e-notarization of key mortgage documents.  A bill passed by the Senate would extend this to all states.

Jon Q. · Answer

My friend:

“Just got notification this AM we have suspended cash out on investment properties due to Covid...”

I’m not really sure what this means “due to Covid”.   Their credit score is 770 with ample collateral (10 properties owned free and clear).