It’s been a historic summer for the mortgage lending and real estate industry at large. The pandemic’s economic and social impact was felt acutely by real estate professionals who were responsible for delivering essential services such as closings (which were traditionally handled in-person) while protecting the health and safety of all transaction participants.
Many of this summer’s mortgage trends are shaping the industry’s movement toward digital adoption. Will COVID-19 ultimately be the igniting force that pushes the mortgage industry into a new digital paradigm?
Historic refinance volume reveals the need for scalable solutions
Over the past few months, mortgage lenders have faced a deluge of refinances. Each month, new reports of record-low interest rates surfaced and for the first time ever, average rates on 30-year home loans dipped below 3 percent. These reports encouraged homeowners to leverage refinancing options to save on their monthly mortgage payments.
Mortgage lenders are undoubtedly overwhelmed by the influx of refinancing applications. There are simply not enough employees in most scenarios to handle the demand for refinances, even with people switching from origination to servicer roles. This is because on top of managing refinance swells, those in origination roles are also being reshuffled to handle loss mitigation assistance and loan modifications from forbearance.
The resounding question is how to handle record volume while maintaining customer service—not to mention preventing employee burnout. A few trends have emerged:
- Some lenders are outsourcing operations.
- Many larger servicers are hiring new employees to fill the gaps.
- Many lenders are investing more heavily in automation and systems to create efficiencies.
Overall, it’s largely uncertain how long the refinance volume influx will persist. The GSEs recently initiated a new fee of 0.5% on every refinance loan starting September 1, 2020. This added cost may detract future refinance action among homeowners. Additionally, recent reports indicate a drop in refinances after interest rates increased to their highest levels in two weeks.
The unpredictable fluctuations in refinancing volume point to the necessity of automated solutions that can scale up and down. During a recent HousingWire webinar, Tom Knapp, CIO of Waterstone Mortgage, discussed how his company has managed the shifting volume. “We’re being very purposeful in how we address staffing. We believe that the use of technology in the appropriate places will be needed. COVID-19 has helped us identify areas in the company where we are not as nimble as we want to be and where technology can help us in the future.”
AI and other digital tools are a necessity in the wake of government forbearance programs
As of August 10, close to 4 million mortgages were in forbearance. That number represents 7.4% of all active mortgages. While many reports indicate that forbearance rates are decreasing, there are a growing number of homeowners requesting forbearance extensions.
Mortgage lenders are largely unequipped to handle the influx of loan modifications resulting from forbearances due to the same staff limitations previously mentioned; however, digital tools can help mortgage lenders prepare and maintain high levels of service.
Predictive analytics, a type of machine learning that uses data to determine future outcomes, can help lenders proactively manage loss mitigation and loan modification processing. Tools can mine data such as unemployment rates in a region or industry to determine a borrower’s need for loan modifications with a high degree of accuracy.
Additionally, mortgage lenders can leverage e-signing solutions that allow borrowers to digitally sign their modified loan documents. They can also utilize automated systems that update workflows and documents in compliance with quickly-changing guidelines from CARES and other forbearance relief efforts.
Remote online notarization gains irreversible traction, lenders must adapt or lose market share
Mortgage lenders have traditionally been slow to adopt remote online notarization (RON) due to limitations they faced on the secondary mortgage market. A lack of universal eNote acceptance led many lenders to focus on paper notes to avoid limiting their resale options.
Within the past few months, this resistance has subsided as the barriers to RON adoption rapidly dissolved. In response to COVID-19, dozens of states enacted temporary RON legislation and a handful of others pushed forward permanent legislation.
With legislative barriers lifted, participants in the secondary market also responded by adjusting their protocols for eNote acceptance. At the recent Digital Closing and eMortgage Bootcamp hosted by ALTA and MBA, Christopher McEntee, President of ICE Mortgage Services and MERSCORP Holdings, provided an update on the mortgage lending industry’s surge in RON acceptance. He highlighted recent updates spanning federal home loan banks, GSEs, aggregators, warehouse lenders, and eCustodians.
- Federal home loan banks: FHLB Des Moines became the first federal home loan bank to allow eNotes as collateral starting July 1, 2020. Shortly after, Dallas FHLB went live with eNotes in mid-July. Now, two others plan to go live by the end of Q3.
- GSEs: Most recently (in July), Ginnie Mae announced that it began to implement the policy, technology, and capabilities to accept eNotes as collateral.
- Aggregators: McEntee noted that the growth of interest in digital tools is prompting investors to explore ways to buy loans that leverage RON.
- Warehouse lenders: According to McEntee there is a continued expansion of warehouse lenders and eCustodians accepting eNotes. Three new warehouse lenders and two new eCustodians went live with eNotes in 2020.
eNote acceptance over the past few months has led many mortgage lenders to adopt RON. MERS eRegistry data shows that eNote registration skyrocketed between the start of 2020 through July 2020.
According to multiple speakers and participants at the ALTA and MBA boot camp, the sizeable movement toward RON is not temporary. Rather, it marks a turning point for fully-digital closings. The decision for mortgage lenders to move forward with RON requires time and financial investment. Those who invest the resources are on an irreversible track toward digitization.
The COVID-19 pandemic will push the industry forward
The last few months are an indicator that the pandemic will continue to impact the real estate industry in largely unpredictable ways. Businesses with the right technology in place will be best positioned to respond efficiently to operational changes and shifting consumer demands.
To learn more about how Qualia empowers mortgage lenders through automated closing document collection and post-closing operations, click below to read about our product, Qualia Post.