Why COVID-19 is having a lasting impact on mortgages

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Lockdowns imposed during the COVID-19 pandemic have supercharged the digitalization of the homebuying process, a push experts say is likely permanent.

By Beth Mattson-Teig

Community bankers didn’t need a pandemic to kickstart digital mortgage platforms. The industry has been moving down the path of automating both customer-facing applications and internal processes for the past several years. However, COVID-19 forced remote working for many people, which has highlighted the value of digital mortgages and further accelerated the move to start-to-finish e-mortgages and e-closings for many banks.

“This whole COVID situation has really supercharged the digitalization of the entire banking industry.”
—Dan Putney, Finastra

“This whole COVID situation has really supercharged the digitalization of the entire banking industry,” says Dan Putney, managing director of mortgage solutions at Finastra.

Banks that already had a good digital infrastructure in place were better equipped to handle remote working requirements and what, for many, was a surge in demand for mortgage refinancing fueled by historically low rates. Banks are recognizing that they will need to offer digital mortgage capabilities to be competitive.

The sticking point that has pulled the online mortgage process offline is the requirement to obtain wet, or ink, signatures on key loan documents, specifically the promissory note and the mortgage deed of trust. Only about half of states allow for the use of remote online notary (RON) technology, where a notary and signer use two-way audio-visual communication to securely execute documents electronically. During the pandemic’s early days, states like New York and Massachusetts saw executive orders allowing documents to be notarized virtually. In addition, a bipartisan bill proposed in the Senate in April—the Securing and Enabling Commerce Using Remote and Electronic Notarization, or SECURE, Act of 2020—sought to enable remote online notarizations.

Government action taken during the pandemic to keep the mortgage business moving could potentially lead to more permanent changes. “Even though it’s not final approval, once you’ve opened the gate, I don’t see it closing again,” says Matt Hansen, founder and CEO of SimpleNexus, a tech firm in Lehi, Utah, that provides a digital mortgage platform. He adds that people want the convenience of signing documents and closing remotely. “That is really great for the industry as a whole to be able to facilitate what everyone has wanted to do forever.”

Digital platforms continue to evolve

The common goal across the mortgage industry is to create a fully electronic process from the initial application all the way to the closing. The buzzword even pre-COVID was “touchless,” says Don Frost, senior vice president of residential lending at $1.8 billion-asset Avidia Bank in Hudson, Mass. “If state law would allow it, we would probably be [completely touchless] in a month or two with everything that we already have in place,” he adds.

Avidia Bank’s mortgage business has been paperless since 2014. The community bank uses Ellie Mae’s Encompass system as its online mortgage platform, which allows customers to create an online portal to fill out an application, upload documents, track progress and e-sign disclosure documents. The bank also introduced its Avidia Mortgage App in March 2019, giving borrowers added flexibility to perform those tasks from a mobile device. Usage of the app has increased substantially to where loan officers are sharing the phone app with borrowers about 75% of the time, according to Frost. “We’re trying to automate as much of the process that we need to and that we can automate, but you still need the human guidance and fitting the person with the right product and financial solution,” he adds.

In Grand Rapids, Mich., $2.7 billion-asset Northpointe Bank has been continuing to enhance its digital mortgage experience. The bank launched a proprietary home loan application tool in 2019 that allows it to capture borrower information electronically. Customers can chat securely with their personal loan officer, upload documentation and e-sign disclosure documents. The loan application tool also integrates with the bank’s servicing system, so, after closing, the customer can go online and make monthly payments or review statements and escrow analysis.

In addition, Northpointe Bank has implemented new technology behind the scenes, such as automated income verification. The community bank often receives a number of mortgage inquiries on its customer service phone system, so it has partnered with a chatbot company that uses AI to respond to commonly asked questions.

“The consumer can still talk with a human,” says Michael J. Winks, the community bank’s president of lending and retail banking, “but it gives them an alternative to get questions answered quickly during periods of heavier call volume.”

More innovation ahead

Hansen sees a more “holistic” future ahead for the digital mortgage process. For example, SimpleNexus offers a white-label web and mobile digital mortgage app that connects loan officers, borrowers, title agents and real estate agents. A common theme is an aim to create a more seamless experience and reduce redundancy, so borrowers don’t have to work on different systems. Platforms, such as Finastra’s Fusion Mortgagebot, are continually adding new features that help with workflow and efficiency ranging from automated income to asset verification, Putney says.

COVID-19 has spurred more virtual appraisals as a means to work around in-home inspections. Borrowers can download an appraisal app that instructs them on taking photos of their home that they upload to the appraiser. Photos are geocoded to verify that they’re from the right location. Automated underwriting systems are also able to generate appraisal waivers in some situations, such as if an appraisal has been done on the property within the last few years.

“These are a lot of things that we are anticipating emerging,” Hansen says, “and I don’t think things will fully go back to the way they were pre-COVID.”

Beth Mattson-Teig is a writer in Minnesota.