The Residential Mortgage Industry after COVID – Where Does it Stand?
Published by Jordan Girard on October 11th, 2020
We’ve all seen the changes COVID made to the mortgage industry almost instantly. Things needed to change to accommodate the ever-changing landscape of the virus. Today, COVID continues to make its impact.
We’ve seen an incredible number of refinances and a slightly lower number of purchases. If nothing else, COVID turned the mortgage industry digital. Without technology, the mortgage industry would suffer even more.
How Has the Mortgage Industry Changed?
Besides moving everything to the digital space, mortgage requirements, needs, and expectations have changed drastically. For example:
- • The average lender requires a 660 credit score versus a 580 credit score pre-COVID
- • There’s more leniency with appraisals, with many lenders accepting drive-by appraisal versus requiring full appraisal reports
- • E-recording documents and video notaries
The Default Risk
Perhaps the largest obstacle the residential mortgage industry faces is the default risk due to the 20.6 million jobs lost due to coronavirus.
Since the CARES Act ended for most deferred mortgages, homeowners are now looking for ways to keep their mortgage and not lose their homes. More than 8% of lenders’ portfolios were comprised of loans in forbearance, making it difficult for lenders to make new loans without the receipt of funds from existing loans.
What faces most mortgage lenders is the onslaught of loan modification requests as borrowers come out of deferral yet still can’t afford their loans. Even if they can afford the payment, many can’t afford the amount they deferred, which is usually a part of a normal deferral program.
Cash-strapped banks find themselves at a crossing road. How do they keep up their servicing requirements while dealing with lower cash flow?
GSEs have come in to help, somewhat. They’re allowing the use of second liens to take care of the deferred payments and using other measures to help servicers
What can Mortgage Lenders Do?
To stay solvent as we follow the post-COVID path, lenders must be flexible. Implementing digitization into the process is key. Without it, lenders will lose their customer base and be unable to predict what’s happening moving forward.
Lenders and borrowers need to be flexible and understanding. Borrowers need to understand all mitigation efforts at their disposal to avoid foreclosure and lenders need to be better about explaining them.
Cross-training employees is the key to scaling operations, especially with a lower workforce. Whether you have employees working 100% remote or are all in the office, a lower employment force is the norm for most companies today. Having all hands on deck, able to handle purchases and refinance is important.
With today’s incredibly low rates, mortgage refinancing is at an all-time high. With tougher requirements, lenders have more work on their hands, which means they need to scale more to be able to handle the tasks. In our rapidly changing technological environment, the mortgage industry must be fluid as we all figure out the new normal and how to proceed.