The Impact of COVID-19 on the Mortgage Industry
Over the last few months, COVID-19 has taken over our lives and presented unprecedented threats to human life and the global economy. The mortgage industry has been severely affected as well. Life as we knew it is a distant reality and is expected to remain so for an extended period. COVID-19 has forced every industry to reassess its future. There is a compulsion to adapt swiftly and respond quickly to the new needs, opportunities, and challenges posed by our “new normal.”
For mortgage professionals at banks, there are two important impacts of COVID-19 that must be accounted for when outlining a new strategy for the mortgage industry:
Interest Rate Reduction
Interest rate reduction has further extended refinance opportunities for borrowers. In addition, with the Fed buying significant amounts of US Treasury and mortgage-backed securities, it is driving the rates down further. Low interest rates have resulted in a flood of applications and client requests.
Rise in unemployment
Lockdowns and shelter-in-place mandates are contributing to a massive rise in unemployment. Unemployment claims have spiked to historic proportions with over 36 million claims filed in the U.S. since March 2020. Servicers are facing a huge spike in missed payments, and while the government and regulatory bodies have stepped in to provide relief to borrowers, this has also led to volatility in the mortgage-backed securities market, putting a huge pressure on hedge positions of mortgage lenders. Due to the pandemic, banks are expected to spend a significant amount of time on default management.
This crisis will force key players in the mortgage industry to revisit priorities and drive digital transformation to enhance client experience and optimize operations.
Here are a few areas mortgage service professionals should focus on:
Mortgage Origination and Servicing will see a significant cost pressure to reduce transaction cost. Unpredictability around vaccine timelines and the possibility of a second wave of COVID-19 will accelerate the move toward virtual home-buying.
Innovations like eClosing will become a high priority for many states, and originators will be compelled to invest in technology adaption.
The regulatory landscape will see many changes as Federal and State authorities step in to provide relief to a large cross-section of society. Based on similar regulatory compliance experience during the mortgage crisis and recovery, banks must quickly adapt to these changing regulations through various mechanisms such as rules-driven configurable workflow platforms, robotic process automation, and API-based integration across platforms.
Data and AI
Huge delays in payments – leading to a large spike in the number of delinquent accounts – will require extensive focus around collections, loan modifications and forbearance, bankruptcy, and related default servicing processes. Banks must invest in both AI and predictive analytics solutions to develop effective strategies around customer segmentation and reduce financial impact.
Cloud, Infrastructure & Cyber-Security
The high cost of compliance and eroding margins will force banks to adopt cloud platforms to reduce the cost of servicing and cost origination per loan.
Cyber security and threat monitoring solutions can significantly reduce risks, especially in the new world of work-from-home which has increased the hazard of potential cyber-attacks.
While the world works toward flattening the curve, nurturing the hope of a return to normalcy, the mortgage industry must fast-track its digital transformation journey to be able to capture, meet, and service demand in this new virtual world.
In other words, technology will be the lubricant moving the housing finance market forward as the world starts to recover from the COVID-19 pandemic.