“The Lending Environment Shifted Under Their Feet”: War Sidelines Mortgage Seekers

Turmoil in Iran is causing lenders to get stricter with mortgage loan applicants. Now, FICO scores that would normally pass muster are winding up in some lending companies’ rejection piles.

The conflict is now widely projected to batter global economies for many months to come.

An increasing number of U.S. lenders look at this situation in terms of risk—or what’s known as risk perception. Some of them appear to be erring on the side of caution.

This does not appear to be a universal shift across all mortgage lenders. But reports from the lending market suggest that some applicants—especially those with credit scores in the high 600s—are facing tougher documentation demands, reduced flexibility, or unexpected denials.

Nothing Virtuous in This Cycle of Financial Anxieties

A lockdown in the Strait of Hormuz is generating a ripple effect of price hikes and financial anxieties around the world. Companies are being affected in obvious and unseen ways. It’s not just the petroleum and airline firms that are feeling the effects. The financial sphere as a whole is getting nervous. And our credit profiles are suddenly taking a hit.

It’s not that our scores are literally dropping on account of the bombs and blockades. The problem is how those scores are now being valued.

So, while your credit score might look the same to you, it doesn’t look that way to lenders. And they’re cutting off some deed seekers whose applications would have succeeded just weeks ago.

Financing companies are more cautious when the economy is bracing for risks. They see inflation rising at the moment. They know it could potentially rise further as the hostilities stretch over time.

How will higher prices—for commutes, for heating and cooling, for the shipping of goods they need to buy—impact the borrowers? What makes a specific applicant possibly more vulnerable to rising prices than others? Who could face stressors, turning monthly housing costs into stressful challenges?  Of course they must stay alert; it’s part of what these professionals are trained to do. Risk can and often does influence their lending decisions. It’s understandable, but it undermines the need to make deeds accessible. It means people who are ready, willing and able to repay a loan aren’t given the credit they deserve. After all, are lenders actually getting hurt here? So far, it doesn’t seem they are. Dean Lyulkin, the CEO of the lending platform Cardiff, says deed holders are paying their loans back pretty much at the same rate they were before the Iranian regime was attacked and war ensued in the Middle East.

But the lenders are concerned that their customers’ ability to pay could be battered after a few months of rising costs.

Home loan underwriters use “overlays” to account for generalized risks. And they have discretion to offer less flexibility in manual checks. A score under 700 is getting extra calls for documents. And the hopeful customers with scores under 700 are reportedly being disappointed in notable numbers.

There’s a regulatory backdrop here, too. Mortgage lenders are not just deciding whether an applicant looks appealing on paper; they are expected to make a reasonable, good-faith determination that the borrower can repay the loan. That means looking beyond the credit score to income stability, debt load, reserves, down payment, property costs, and the overall risk profile. Loans that lenders want to sell into the secondary mortgage market also have to satisfy investor and agency standards, which can push companies to apply their own stricter “overlays” when uncertainty rises. None of this means every denial is fair or wise. But it helps explain why lenders may tighten standards even before borrowers actually start falling behind.

Alexander Katsman, CEO and founder of Credit Booster AI, reports seeing a spike in customers who are leaving lenders’ offices in disappointment and frustration. Not because they have a bad credit profile at all, says Katsman. But “because the lending environment shifted under their feet.” 

What’s worse still? Even those applicants who do get approvals may end up having to put more money down on the home to obtain their loans, compared to those who applied in March 2026 and earlier.

This isn’t happening at all lending companies. Some are handling mortgage applicants in the normal way. Shopping around can save the day for some hopeful borrowers with scores in the high 600s. The point is, unexpected rejections are occurring at a rate high enough to catch the attention of CNBC, a mainstream financial news outlet.

Concerned about credit? Our Five-Point Credit Repair Plan offers some ideas for boosting your profile.

Sooooo… Rate Cuts Are Not Coming After All?

Kevin Warsh, who is cleared to become chair of the U.S. Federal Reserve, is widely considered “dovish” on interest rates—that is, Warsh is willing to lower rates. But the Fed’s April meeting showed a fragmented board of governors. Predictions that banks would have lower interest rates in 2026 are now fizzling out.

Why the change? Have surging oil and gas prices dashed any hopes that the central bank will cut rates?

Military activities are pressing prices upward. Inflation rose 3.2% in March—quite a bit higher than the federal target of 2% inflation. And, as Fed chair Jerome Powell told the press, “we know that there will be, you know, that there is headline inflation coming out of the Gulf and we don’t know how much that will be… We’re going to need to see.”

Still, analysts do see the longer-term outlook as consistent with the central bank’s 2% inflation goal. But at the moment, the near-term uncertainty weighs heavily. And this is what’s steering the lending markets—even if the outlook for the long term may still include the lowering of interest rates.

Here’s the rub.

If and when the banks’ rates do come down, risks will stay elevated as long as wars continue. Lenders see turmoil between nations as a risk factor, no matter what other economic factors are present. Mariano Torras, an economics and finance professor, told CNBC that “the effective cost of credit can rise when fewer borrowers qualify” for loan products. It’s a classic Catch-22.  

Read more about the difference between Jerome Powell and Kevin Warsh, and what the change in leadership at the U.S. Federal Reserve could mean for the deed market.

Feels Familiar, Doesn’t It?

Where have we seen this sort of approach from banks before? Oh, yes. The pandemic. The global health scare led some lenders to tighten up their approval standards. Loans for investor-buyers depended on higher credit scores, more documentation for proof of income and job security, and more double-checks. Any time lenders make the required stack of paperwork taller, a number of applicants will pull out and wait for better conditions.

Some of these applicants are ready to try again now. And this time, denial seems even harder to stomach. War, unlike a virus, ought to be possible to stop through human wisdom and action. As long as it continues, hard-working people are paying the price. 

What’s a deed-seeker to do? It will come as no surprise that market watchers are telling people to do what we can now to strengthen our financial profiles.

To stay viable, focus on raising your credit score if at all possible. See if any of the new apps might be supportive—and save. If you can manage 20% down, you’re on a solid pathway, even with a fair credit score.

Important note: Deeds.com is not a financial adviser. Nothing on this blog should be considered financial or tax advice.