From transformation to restoration – Article from Housing Wire January 6, 2021, 11:09 am
By Kevin McmahonShare O
2020 has certainly been a year to remember. While we may be ready to firmly plant our feet in 2021, we shouldn’t leave the past 12 months behind without taking a critical look at how the COVID-19 pandemic has impacted the housing market, and how it will pave the way for 2021 and beyond. Before we repress these 2020 memories, let’s dive into how this pandemic has created housing disruption in a number of areas of the industry, providing us all a nudge toward trying new processes and technologies that we maybe have assumed were still a few years away.
Let’s start with a look at originations and delinquencies. We’ve all thrown out our 2020 housing market forecasts at this point as the origination market has screamed to all-time records. According to the Mortgage Bankers Association, mortgage origination volume is expected to reach $3.1 trillion, with the largest refinance market since 2003 and the largest home purchase loan market since 2005 and 2006. Then of course, we have the pandemic, which thrust us into an unexpected level of unemployment thereby increasing delinquencies. As unemployment increases and incomes decline, borrowers refrain from buying homes and the rate of requests for forbearance or some type of homeowner assistance increases, naturally. It’s at that moment that the mortgage industry changes course from focusing primarily on helping borrowers purchase homes to helping them keep their homes.
This is not what we’ve seen throughout 2020, though. As an industry, it’s been a challenge to wrap our arms around this unprecedented market and the disruption that accompanies it. Unlike every cycle before it, 2020 brought originations at record high levels at one end of the spectrum and delinquencies at the other end of the spectrum that also are reaching heights we haven’t seen since the crisis. According to Black Knight, the highest government sponsored enterprise forbearance rate was reported on May 29th as 7.2% compared to 4% in the first week of October. Generally, forbearance has been trending downward since the end of May. So, on one end are employed borrowers who are able and happy to take advantage of the low interest rates to purchase a home or refinance an existing mortgage. On the opposite end, there are unemployed borrowers who now have easy access to homeowner assistance programs that can aid them in keeping their homes, including payment deferral and forbearance.
What does it mean for the 2021 housing market?
With all that said, we’re all left wondering where we go from here. How much of 2021 will be a continuation of 2020? Is pandemic life the new normal, or is there a way back to life as we knew it in 2019? We talk a lot at Genworth about our belief statements. We force ourselves, no matter the level of uncertainty, to establish our point of view, assign probabilities to that point of view and then set strategy from there. There are many different paths we can take as an industry, but one belief statement that is increasingly shared across mortgage finance: The forced increased use and implementation of technology to reduce process friction is finally here to stay and will only accelerate.
Just one example is the disruption in the appraisal world. For months now, desktop and drive-by appraisals have been the go-to processes for appraising homes and enabled the mortgage lending process to continue. According to Genworth Mortgage Insurance Chief Appraiser Adam Johnston, the use of desktop and drive-by appraisals have been a necessary adaptation to concerns about the spread of COVID-19, and may continue to be used as standard practice or as a go-to solution should we find ourselves in another situation, similar to COVID-19. While these more virtual and low-to-no contact forms of appraisals are being utilized with increased frequency, they do present a few challenges that must be taken into consideration, one of them being borrower-supplied photo fraud. This type of fraud can take place when the photographs of the home’s interior condition, quality and features are not from the borrower’s actual interior. When confronted with this situation, appraisers can utilize a third-party photo capture tool that has strong fraud controls and capabilities built within, including location validation, photo date and time, internet photo detection and notification controls to alert the appraiser of photographs with suspicious characteristics.
Technology has also supported a shift in industry roles. We notice that originators are increasingly continuing to morph into loan counselors rather than paper shufflers. Prior to the pandemic, one in four applications were taken in person or over the phone, and that number has quickly moved to one in seven. The introduction of easy-to-use point-of-sales systems has eased that transition. Processors are becoming loan facilitators guiding the borrower through the process rather than exercising their stare and compare expertise for document-based data entry; and underwriter shortages are driving the use of technology to stratify which loans need what level of review, thereby improving the use of high cost resources. Every step of the process is moving at a much quicker pace thanks to 2020’s housing disruption. In 2021, we expect to see this trend continue as dead time is removed and the elapsed time from application to close shrinks.
2020 has also been another proving ground where the housing market shows that unprecedented challenges call for unprecedented solutions. We’ve seen its importance before, when during the 2008 financial crisis, new policies and services and enhancements to existing policies were created. Those policies and services include automated income and employment verification, credit risk transfers from the GSEs to private investors and the Private Mortgage Insurer Eligibility Requirements that strengthened the mortgage insurance industry’s risk and capital standards. Housing disruption naturally and inevitably clears a path to innovation.
In 2020, we were forced to use digital tools such as remote online notary and in-person electronic notary for closing. Next year, it’ll be imperative to work with state legislatures to complete the regulatory work so these tools can be used in all 50 states, compared to where we are now which is right around 50%.
Digital home shopping has also taken off. As a result of the COVID-19 pandemic, shopping for a home online has increased and naturally spurred improvements in the digital tools that give borrowers the same experience without stepping foot inside the home. As shared at a recent Blend conference, 45% of homes in these past several pandemic months were sold without the buyer physically visiting the property.
Also, other tools are evolving where a homebuyer may enter a home without a real estate agent or owner present, and tour the home with a virtual guide that points out key characteristics of interest to the potential buyer. Artificial intelligence helps facilitate this process. When it comes to data management, moving AI into that process will help determine when a loan has complete data and is ready for underwriting more quickly; and as it relates to document management, the processor wouldn’t be the one figuring out what’s missing, but the system would and then alert the borrower of the need via a point-of-sale system.
As we move into 2021, there’s still quite a bit of uncertainty about the COVID-19 pandemic and what the lasting effects on the economy and the housing market will be. However, I believe this year is that nudge of housing disruption the industry needed to push forward with innovations that lived on whiteboards for years. Successful organizations going forward will be the ones who embrace and leverage these changes to run better businesses in 2021 and beyond.
To read the full December/January issue of HousingWire Magazine, click here.