The COVID-19 pandemic has challenged our society in ways we couldn’t imagine even six months ago. The home lending industry is no exception.
Below, we explore how the U.S. lending industry is adapting in the following areas:
- Record low interest rates and home inventory levels
- Tightening of lending standards / modifying certain lending products
- Providing online or curb-side services for social distancing when feasible
Record Low Interest Rates and Home Inventory Levels
With mortgage rates falling to record lows, experts wonder just how long this will continue. Even before COVID-19, rates had been sliding in response to market forces and Federal Reserve policies. Strong buyer demand has held steady for the most part as low home inventory rates continue to fuel competition and upward prices in many markets.
As further proof, a recent survey by LendingTree reported 53 percent of homebuyers are more likely to buy a home in the next year because of the COVID-19 pandemic and an impressive 67 percent of potential homebuyers said the main reason they would be willing to move is to take advantage of the record-low mortgage rates.
Because of the low supply of available homes for sale now, home sale prices are exceptionally strong, but interest rates are predicted to increase should the economy and unemployment rates improve. The silver lining is that current interest rates clearly impact affordability. Danielle Hale, Chief Economist at Realtor.com, recently confirmed in an interview with The Washington Post, “Low rates are energizing home buyers with a boost in affordability and are bringing them back to the housing market, despite the swirling economic uncertainty.”
To navigate the interest rate environment, it’s recommended borrowers shop for the lender who is most knowledgeable to guide them through the process and the best fit – both in service and rates. NEI collaborates with knowledgeable, service-oriented lending firms who not only have a wide variety of loan products to offer but can guide transferees through the process. Relocating employees can also have these lenders run different mortgage scenarios, evaluating various loan products, and review the results and options with them, so transferees can make the best choice.
Increased Forbearance Requests Resulting in
Risk Mitigation Strategies
Changes in the mortgage industry have been implemented to mitigate risk as a result of ongoing high unemployment and the number of people requesting mortgage payment forbearance.
Nationally, approximately 8 percent of mortgages are in forbearance today -- which translates to over 4 million U.S. homes – and could influence the buying process if a transferee were in a forbearance agreement on their current property while trying to buy another.
As a result of the high unemployment and mortgage forbearance requests, many banks and lending firms have tightened their borrowing standards and criteria.
- Borrowers may need to provide banks or mortgage companies updated income and/or employment verification documents closer to the time of closing than was required before COVID-19.
- To reduce risk exposure further, some -- but not all – lenders around the country have discontinued certain mortgage products. Many have paused offering non-conforming and jumbo loans or raised down payments for jumbo loans. For lenders that are still offering jumbo financing, guidelines are being reviewed across the board regarding down payment and credit scores.
- Some lenders in the industry have raised minimum FICO scores for mortgage products, reduced acceptable loan-to-value percentages and may no longer accept new applications for home equity lines of credit products as companies limit their risk exposure in these uncertain economic times.
Online or Curb-side Services When Feasible
The industry has done a great job responding quickly to numerous COVID-19 challenges – innovating wherever possible and working collaboratively. Starting early in the process can help with the timing associated with new pandemic-related procedures and changes including:
- Hybrid e-closings – Closing agents have become very agile in a very short timeframe to allow closings to happen in a socially distant manner. Hybrid e-closings have allowed borrowers to sign majority of closing documents in the comfort of their own home. Some lenders around the country are currently offering such e-closings; however, they may not be available in all 50 states.
- Drive-thru closings and mobile notaries – Many title companies are using “drive thru” closings to minimize face-to-face contact. Some lenders are using remote notaries through webcams and others are using mobile notaries who can send a notary to the borrower to sign closing documents. Such remote signing options are based on temporary state Executive orders and other temporary authorizations, so their availability may end with short notice. While these remote options may not be available for all, they can benefit many.
- Appraisals – Automated valuations, desktop appraisals and exterior updates have become more prevalent. For existing homes, lenders are leveraging drive-by, desk-top or exterior only appraisals. Yet even though lenders use desktop reviews and drive-by appraisals, they must still be conducted by licensed appraisers.
- For new construction or vacant properties, appraisals and final inspections are happening in a business-as-usual way as interior inspections can be done without risk to the appraiser’s health.
- Verification of Employment (VOE) – Since most employees now work from home, lenders had to start using alternative methods for VOE. In lieu of 10-day pre-closing verification, a written VOE, paystub or bank statement evidencing payroll may often be permitted.
- Allowable age of documents – Approved age of documents required were reduced by most lenders (e.g., from 4 months old to no more than 2 months old), but many lenders also require updated documents from borrowers just prior to closing.
NEI recommends speaking with a lender early in the home finding and home purchase process and understanding what income documentation (recent pay stubs, W-2s, tax returns, etc.) a specific lender might need for loan approval.
Service Excellence and The Human Connection
Buying a home any time can be a little stressful, but a global pandemic can make it a bit more challenging. Even though relocating employees appreciate the convenience of many digital tools to help them, NEI consistently hears that they truly appreciate always having an advocate with their NEI Account Executive and lending service partner just a phone call away.
We fully appreciate how important service excellence and the human connection is to the entire relocation process, including the more intricate mortgage process in today’s “new normal”. NEI educates relocating employees and sets expectations for the processes when using a mortgage lender. The lender partner then provides an explanation of each step throughout the process, and prior to closing the sale, notifies the relocating employee and NEI of final closing costs.
Keeping our pulse on mortgage market trends for clients helps eliminate surprises. NEI makes every effort to help ease the financial burden placed on today’s relocating employee and when employees select one of NEI’s four preferred mortgage partners, they have access to key advantages including:
- Direct billing of allowable closing costs per policy
- Mortgage loans available in all 50 states
- Competitive rates
- Efficient application process, including applying for a loan, locking in a rate, being pre-approved, and learning about alternate loan products can all be accomplished conveniently online or over the phone
- On-time closing guarantees
- Second mortgages or mortgage subsidies for high cost of living benefits
- Ability to assist international employees moving into the U.S. and establishing U.S. credit
Working in partnership with NEI’s lending service partner loan officers, we personalize, humanize and streamline the mortgage process to achieve Service Exceeding Expectations across all relocation aspects for satisfying and productive customer experiences. Said one recent NEI client transferee about their lending partner experience:
“I was very happy with the way loan officer handled the whole process of buying a house. He was very willing to do whatever it would take to be there if I had questions or needed anything. That is a great service that is hard to come about nowadays.”