Founder and CEO of Network Capital Funding Corporation writing about trends in the mortgage industry.
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You may have noticed that the response to the Covid-19 pandemic has meant shifts in the way that businesses operate, with a common theme being less face-to-face interaction. Certain industries have implemented fundamental changes with no clear expiration date, and lending is no exception.
The lending industry has not been spared from the reach of Covid-19, a fact that became rapidly apparent to consumers and businesses seeking financial relief — often fruitlessly — amid mass economic strain. As a consumer, business owner, homeowner or anybody else who is currently seeking a loan or may do so in the future, overcoming the unique challenges of post-Covid-19 lending could be a key to securing the refinancing that you seek.
Challenge 1: Widespread Aversion To In-Home Appraisals
Historically speaking, the refinancing process has been fairly straightforward: Apply for refinancing, allow an appraiser to view your property in person and wait for approval or denial of your application based on several criteria.
The onset of Covid-19 and related safety precautions brought two main challenges:
1. Some borrowers do not want to allow anyone in their home.
2. The number of new appraisers is significantly fewer than the number retiring, but Covid-19 has exacerbated this disparity as a large number of appraisers in the high-risk age range have suspended work or retired. Additionally, during the time of strict quarantine, it was virtually impossible to get an appraisal done or to find one available, and some areas are still affected by this.
You could also be asked to provide substantial documentation for any changes you have made to your home, such as renovations, since you last received financing. While the industry has proven adaptable, you may have to take steps to complete your appraisal that were not required in the past.
Challenge 2: Banks Are Flooded With Refinancing Requests
The lending economy has taken on a pattern that has caused banks’ loan application pipelines to become severely backlogged, if not clogged. The pattern goes as follows:
• Interest rates have remained comparatively low for the past 12 years or so, according to The Balance.
• With rates at historic lows, virtually everyone with a conventional mortgage can benefit from a refinance. We’re refinancing people who just refinanced three or four months ago!
• The onset of the coronavirus sparked real economic turmoil, with the Federal Reserve lowering interest rates even further as an attempt to stimulate economic activity.
• The Fed overnight rate is hovering around 0%, and home and business owners are applying for refinancing in droves to take advantage of these unprecedented rates.
Depending on the specifics of your mortgage, refinancing could create tens of thousands of dollars (or more) in savings over the life of your loan. If you are to seek refinancing, you can expect that the process may take longer than it did last time you sought new mortgage terms.
Challenge 3: Inefficiency In Employment Verification
If nothing else, Covid-19 has spelled uncertainty in the job market, with businesses being thrown into various states of change. Closures, restructuring and extreme shifts in operations have made it more difficult for lenders to communicate with employers for the purposes of verifying employment.
The traditional means of employment verification is a verbal endorsement from an employer. While this may still be possible for some or most refinancing applicants, it may not be in all cases. Per The Brookings Institute, some accommodating adjustments made by the likes of Fannie Mae and Freddie Mac include:
• Permitting applicants to submit emails from their employers as a form of employment verification.
• Permitting applicants to submit pay stubs or bank statements in lieu of verbal employment verification.
• Extending the period of time that an applicant has to submit their employment verification, in some cases until the date that the loan is scheduled for delivery.
However, if someone is furloughed and on leave without pay, they will most likely not qualify for a loan. Additionally, nonessential business owners who can’t operate or who were adversely affected may not qualify either, due to the recent FNMA self-employed income verification requirements.
Like many of the adjustments the lending industry has been forced to make amid the changing health landscape, means of employment verification are simply different, not necessarily better or worse than the old ways of doing things. Even if you do consider them to be less desirable, they may be a new fact of doing business if you hope to obtain refinancing.
To Mitigate These Challenges, Get With A Tech-Forward Lender
It may be fair to state that changes in the lending process have created, in certain cases, greater inefficiency. It may be in your favor to combat any additional inefficiency with means of greater efficiency that are available to you, with lending-focused technology being a prime example.
Look for a tech-driven lender that:
• Matches you with a home loan based on criteria dictated by you, and nobody else.
• Is primarily digital, and therefore ready-made to address today’s lending challenges, with standard features that include e-signatures, document-gathering assistance and agents who will work within the current societal restrictions to close your deal.
• Allows for the process to be primarily remote, which lends well to the social distancing requirements of the pandemic.
• Has the support of industry tech leaders like Amazon AWS, Microsoft Azure and Salesforce.
In closing, always evaluate your aversion to risk with respect to every refinancing-related decision that you make.
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