Is Contactless Lending the New Norm?
April 8, 2020
For home buyers or homeowners still needing to close on a loan, real estate pros can offer them some extra assurance: Mortgages are now being processed without any physical contact. That means consumers can still take advantage of the lowest mortgage rates in history without fears of breaking social distancing rules during the COVID-19 pandemic. Details of this trend were presented at a Virtual Education Expo training session sponsored by Coldwell Banker on Tuesday.
“With mortgage rates at historical lows, consumers can save money on the purchase of a home or they can refinance to put more money in their pockets, possibly when they need it most,” said Tim Foley, executive vice president of operations for Coldwell Banker, during the session on mortgages. “The ability to refinance and complete a purchase with a mortgage with no human contact may soothe some fears.”
“It’s a game changer and the new norm,” added session speaker Victor Ciardelli, president and CEO of Guaranteed Rate Affinity. “You can walk through the process in a new way.” Most lenders have moved to digital or hybrid models, including virtual appraisals to complete transactions.
Mortgage Savings Are Multiplying
The purchasing power could be great, too, with low mortgage rates that could result in hundreds or possibly thousands in savings annually. The 30-year fixed-rate mortgage is at 3.5% compared to 3.65% last week, Ciardelli says. That is much lower than a year ago, when it averaged 4.28%, as well as the long-term average of 7.98%.
The brokerage Redfin studied the purchasing power across the country from mortgage rates compared to March 2019 (an average of 4.41%) to March 2020 (an average of 3.2% the first week of March). The study found that lower rates can make more expensive homes available at a much lower monthly payment. For example, at a 3.2% mortgage rate, a home buyer with a $2,500 monthly mortgage budget could afford to purchase a home priced $51,250 higher than a year earlier when rates were at 4.4%, according to Redfin’s analysis. Further, they found that the monthly payment on a $457,000 home has dropped from $2,500 a year ago. A homeowner who could afford a $457,000 home in March of 2019 likely could afford one at $508,250 in March, given the lower rates.
Ciardelli said that technology is being rapidly embraced by lenders to process loans for purchase and refinancings, from running credit reports instantly online and leveraging automated Fannie Mae and Freddie underwriting tools for approvals. Disclosures can be signed electronically, and third-party tools are being used for validation of income and assets.
Appraisals are occurring using contactless techniques as well, using a variety of methods like desktop appraisals (using images of homes digitally on record for eligible purchase transactions), virtual appraisals, or even appraisal waivers in some cases. For example, some homeowners may be asked to connect with an appraiser on a webcam-enabled session such as via Skype, FaceTime, WhatsApp, Zoom, or another tool. Or homeowners may be asked to take photos of the home and send them digitally to the appraiser. Some appraisers may even go to the home’s doorstep, offering a sanitary-wiped digital camera to the owner to take photos, while the appraiser does the valuation on the exterior and allows the homeowner to send them the interior pictures for their valuations.
Closings are proceeding, too. Several states permit completely digital closings, including accepting electronic notarizations. In other places, lenders and title companies are adopting other methods, such as signing documents through windows or drive-thru-like set ups. Hybrid closing where a notary could show up to the house with the few documents, hand them to borrowers from the doorstep, back up 20 feet, and ask owners to use their own pen to sign.
“Understand the ‘new norm’ and that even with the incredible amount of volume that is coming in and everyone working remotely, we are able to get loans through the system as seamlessly as possible,” Ciardelli said.
This Isn’t 2009
Ciardelli also said his mortgage company is not fearful of another financial crisis of 2009 striking the housing market and resulting in a foreclosure surge. Borrowing standards are tighter, no-documentation loans have vanished, and credit profiles of borrowers are stronger to weather a temporary dip in the market. The rush to offer forbearance and deferment options to struggling homeowners whose work has been affected by the pandemic will prevent any drive up in foreclosures and defaults, as well as protect home values, Ciardelli said during the session.
Instead, Ciardelli said he’s optimistic of pent-up demand for the housing market after the outbreak subsides. Millions are unemployed due to stay-at-home or shelter-in-place orders and will likely return once cities open back up.
“We went into this with a very stable market and an economy that was roaring and unemployment at historic lows,” Ciardelli said. “When you have shelter-in-place restrictions, businesses are unable to operate and, of course, more people will be unemployed. … We’re hopeful social distancing works in the near future … and then we can see a historic number of people going back to work. Until then, we have the ability for people to look at homes virtually with agents and keep the ball moving during this time. … I think the housing market will be on fire” when the pandemic is over.
Updated: April 19, 2021