What mortgage lending will look like in the post-COVID-19 world

by Mainstreet Organization of Realtors

When I look back on the start of 2020, it’s with a twinge of nostalgia. We were seeing a record-setting housing market, with interest rates at their lowest point in years. The market felt too good to be true. It was. We saw it all come to a screeching halt.

When COVID-19 hit the U.S., every industry was forced to pivot. None of us had ever seen anything like this. Real estate professionals wondered if their businesses would be able to survive the pandemic. Many of us asked, “So, what’s next?”

Luckily, what happened next was unlike what Americans saw in the 2008 recession. That’s because today’s real estate market is more resilient than it was 12 years ago. The foreclosure rate is unlikely to reach the previous recession’s level, housing debt in relation to income is lower and the amount of mortgages held by borrowers with low credit scores is less than half of what it was in 2007.

I’ve been so impressed with how real estate professionals and lenders adapted to continue serving homebuyers and sellers. Here’s where we are now, and what it means for mortgage lending in a post-COVID-19 world.

Interest rates will hold at our current low — or possibly even go lower — through 2021

I’ve been in mortgage lending for 30 years, and this is the lowest I’ve ever seen interest rates. It’s nothing short of a homebuyer’s dream to get these unbelievable deals on 30-year fixed-rate mortgages. Many homeowners are also smiling, as they’re able to refinance their home, which could save some tens of thousands of dollars over the course of their loans.

I would expect the Federal Reserve to, at the very least, keep rates where they are through 2021 as the country weathers the economic uncertainty of COVID-19. Already, we’ve seen rates on 30-year fixed-rate mortgages hit historic lows multiple times this year.

I’m not one to tell someone to lock in on a mortgage rate, but they should feel good about the direction rates are trending. Homebuyers and homeowners should act accordingly.

This isn’t to say that low rates will be enough for all households. Thirty-two percent of owners and renters were late on their July housing payment. Many will pay that later in the month, but this data sheds light on the fact that more support may be needed for owners and renters.

Changes in homebuying social norms are here to stay

When COVID-19 arrived, people stayed home, but that didn’t mean they weren’t still searching for the new home of their dreams. Brokers quickly scrambled to set up 3D tours and accommodate new home-viewing regulations with masks, hand sanitizer and a general heightened sense of urgency to get homes sold quickly. Some buyers didn’t even see their new homes in person until closing.

The mortgage industry also had to make some changes to the usual way of doing things so people could keep buying homes in these strange times. Many lenders began allowing more appraisal waivers on loan applications. This method determines the value of a home using a computer, rather than through an in-person appraisal. In addition to limiting in-person interactions, this often speeds up the process of closing homes and saves the borrower money.

Lenders are also changing how they check buyers’ employment. With the mass furloughs and layoffs we’ve seen, lenders are trying to avoid the risk of lending to an employee who’s recently been let go. Instead of checking 10 days prior, lenders are checking in the day before or day of closing to ensure the buyer is still working.

These trends aren’t going anywhere. Homebuyers, sellers, brokers and lenders alike are all getting more comfortable with the “new normal,” which focuses on efficiency, speed and diligence in the closing of homes.

The market will only get better

Fannie Mae recently predicted this year will see a 15% drop in home sales when compared to 2019 numbers, which in large part is due to the incredibly impressive previous year real estate had, but also the impact COVID-19 had on homebuyers in the spring.
However, now we’re seeing many real estate professionals and lenders who are closing more business than ever before. Back in the spring, we were asking each other “So, what’s next?” with an uneasy tone. Now, we’re asking that same question, but we’re excited about the future. Many think the rest of 2020 will remain strong, thanks to low inventory and pent-up demand.

While we’re optimistic about the future, COVID-19 will steer the real estate industry for the foreseeable future. We’re all in this turbulent time together. I’m encouraging lenders to check in on real estate professionals and clients they work with. It’s important that leaders in the mortgage industry lend a hand where possible and do their part to help others feel comfortable about next steps.

John Horton is the director of strategic growth at Midwest Lending Corporation, an affiliate committee member of the Mainstreet Organization of Realtors and a major investor in the Realtors Political Action Committee.

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