The Covid-19 pandemic has hit the mortgage industry hard, and lenders are under tremendous pressure to keep operations running amid the chaos. At a time when potential homebuyers are trying hard to cash in on the low mortgage interest rates, the plummeting economy is being seen as the biggest roadblock. In particular, underwriters are facing a tough time to do a satisfactory job given the slowed underwriting process. They are encountering unprecedented challenges in verifying changes in the finances of borrowers and in ensuring that borrowers genuinely qualify for the loans they are applying for.
It’s not an encouraging factor for the lenders who are pushing hard to bounce back from the effects of the crisis. In these times of distress, underwriters must act smart to navigate the slowed-down mortgage loan process to ensure that potential borrowers aren’t discouraged from finalizing a deal. As underwriters grapple with the need to support borrowers, while maintaining disclosure standards and managing the associated risks, they are desperately looking for some magic wand.
Below are a few proactive steps that would help underwriters to address the current and upcoming workflow bottlenecks to ensure efficiency while launching and closing deals.
Virtual Due Diligence
In-person meetings and site visits have always been a standard practice for underwriters to assess the eligibility and creditworthiness of applicants. But with all the social distancing norms and travel restrictions currently in force, physical meetings are rare. This has led underwriters to worry about the due diligence process for executing deals. In addition, they are also concerned about the borrower experience if they resort to virtual diligence meetings.
- Underwriters must substitute in-person meetings with virtual due diligence by establishing clear lines of communication, and must see to it that all questions are addressed appropriately.
- With the virtual way of connecting things, there is always a chance that items aren’t fully covered and issues are not fully addressed; hence the underwriter must be present and watchful throughout the meetings.
- Underwriters must ensure that all participants are able and willing to fully engage in the process, and accurate attendee details must be recorded for future reference.
The Covid-19 catastrophe has forced virtually every business to adopt large-scale digitization to ensure survival and profitability. In response to the limitations imposed by the virus, underwriters across the country have already started adopting the digital eClosing strategy to serve clients in this rough patch. eClosing refers to the use of digital processes to close a mortgage loan electronically. It involves a secure digital environment where closing documents and information are executed and accessed electronically. While the move to adopt eClosing was relatively slow in pre-Covid days, the crisis has underscored the role of the technology in establishing an efficient underwriting process.
- Underwriters must adopt technologies such as e-signatures to deliver disclosures and loan documents without exposing themselves to the risk of the virus. It also helps them to ensure compliance with the standards of digital document management, notarization, and signing.
- Hybrid eClosings incorporates a mix of electronic and paper documents, where the title agent guides borrowers through the process of e-signing the documents. The other option, full eClosing, involves electronic signing of the promissory note and security instrument.
- Lenders and underwriters must join forces with a competent mortgage services firm that can introduce eClosing to their ecosystem and help the workforce with the required change management and post-implementation support.
Underwriters must take special care to ensure that the issuer’s disclosure reveals the impact of the pandemic outbreak accurately and completely. They must have a clear process to constantly monitor the disclosure for updates before the launch and even during the offering process, considering the fluctuating market that affects all borrowers and lenders.
- To better assess the Covid-19 related effects on the borrowing company, there must be a proper assessment of the supply chain and the impacts on both internal and external stakeholders.
- They must also assess the borrower’s exposure to other countries or regions that are impacted severely by COVID-19 crisis; in addition to the contingency plans for subsequent waves of the virus (if any).
- Opinions of rating agencies (if available) and any other impact of the pandemic, or reactions to it (including government aid), must be considered.
Digital Comfort Letters
Under ordinary circumstances, underwriters receive letters from account auditors to support the underwriters’ basis to claim that there are no material omissions or misstatements in the applicant’s financial information that is presented in the offering document. But with the crisis limiting the auditor’s ability to follow the standard procedures, underwriters must prepare for a drastically different approach by the auditors to execute the process.
- Auditors are providing negative assurance comfort only if the issuer can perform procedures to analyze the crisis’s impact on their operations. But as most issuers have adopted their own COVID-19-related measures, underwriters have to proceed without negative assurance.
- Underwriters must consider these challenges as part of the overall transaction to ensure an accurate offer letter without any material misstatement of fact.
Owing to the detrimental effects of the Covid-19 crisis, the mortgage industry has seen perhaps its worst in the form of changes in borrowers’ employment, loss of business opportunities, discouraged workers, regulatory complications, and plummeting bottom lines. Bearing this in mind, and also the fact that loose underwriting practices contributed to the 2008 housing crisis, lenders and underwriters must step up their game to meet the new norm of the post-Covid era for smooth closings.
Who We Are and Why We Are an Industry Authority
As a trusted name in end-to-end mortgage services, Expert Mortgage Assistance (EMA) is enabling lenders across the U.S. to stay profitable even during the ongoing Covid-19 catastrophe. We offer targeted and result-focused mortgage underwriting services by leveraging cutting-edge technology to ensure high-throughput for our mortgage clients. Our custom underwriting solutions enable clients to determine borrower eligibility and loan risks in moments, cutting down on time and operating overheads, which reflect directly in their bottom lines.