How COVID-19 Is Changing the Mortgage Market

This story originally appeared in the August edition of DS News.

Paul Nagai, Managing Director, The Antares Company, has 25 years’ experience in financial services, previously working for Ernst & Young, JPMorgan Chase, and Accenture.

The Antares Company provides solutions and services to the banking, capital markets, investment management, and private market sectors.

Nagai discussed with DS News how the Coronavirus could change the mortgage market and the challenges facing mortgage servicers.

What are some of the challenges servicers face when preparing customers who exit forbearance?

Let me touch on three things quickly. One is a quality borrower conversation, second is stress testing your operations, and third is preparing for that second wave of forbearance requests.

On the first one, there’s so much information that’s out there in social media and in the news that some of it’s accurate, some of it’s less accurate. It’ll be important to equip agents to have that quality discussion and really help borrowers understand their situation, what their options are, and what the process is to move forward. This will help smooth things and reduce risk over the long term.

Secondly, stress testing the operations. Back in 2008, a lot of people made changes to their operations and many of those haven’t really been tested at scale until this event. That may be things like shifting loans to subservicers or MSR sales and having the opportunity to test that out under this environment where we have close to 9% of the people in forbearances will be important.

On that point, with organization staffing up to support these volumes, often those people are being drawn from teams or parts of the organization that may be less familiar with mortgage. Ensuring that they have the proper training in advance of those discussions will be important.

Finally, preparing for that second wave of forbearance requests. The CARES Act provides for this, and so certainly several people will want to take advantage of that. But it will be important, I think, to prepare agents to really explain what that means, help people understand the ramifications of taking a second period as well as their alternatives, and this will really help with the long-term customer relationship, as well as getting borrowers into the right programs.

How will COVID-19 change the mortgage market?

There are three things that we’re looking at and having discussions with people.

The first is just the logistics of the home buying process. Secondly, is how this has impacted operations of lenders. And then the last one is kind of what are the longer-term impacts of this going to be to the market and trends of home buying.

Going to the first one, really the logistics of the home buying process, we’ve seen a lot of creative ideas out there. Whether that’s remote showings and remotely facilitated showings, and we expect a lot of that certainly to continue.

As a result, we really feel like there’s going to be a fair amount of innovation also in the digital space, as well as much more openness to adopting these digital capabilities to do closings and remote types of activities. So long term, we think that’s going to be actually a very good thing for the market.The second thing is really around the operational impacts that have happened, and currently, there’s a ton of things going on to set protocols up that focus on health and safety of employees and those things are all going to be very important in the near term.

But those have also created a number of challenges, particularly in the cybersecurity space, as well as the technology space as organizations have to ensure that their endpoints are secured, as well as deal with a much wider variety of networks like home networks and things like that, that create challenges for their technology teams.

The last piece of that from an operations perspective is looking at the long-term supply chain. Certain organizations may have resources that are global, and this has disrupted that. They’ll be looking at how that needs to be adjusted for the future to prepare for future events and to have a solid business continuity plan in place which may include bringing some teams back on shore. It may include investing in certain types of technology and automation as well.

The final question around long-term market impacts, probably a little too early to say, but this could certainly be the inflection point between people being drawn to larger urban centers, where they need to be close to their work to a much more distributed environment where people can work remotely. We’ve certainly seen some indication that some organizations are going to be open to that in the long term.

If that’s the case, it could dramatically change the dynamic of which geographic regions have growth and which ones shrink, but probably still a little too early to tell on that.