The impact of the business disruption of the past month has been evident in many ways across the mortgage and real estate industries. Black Knight Inc. recently released a whitepaper diving into some of the most important ways in which business has changed in this time.
To begin with, Black Knight said the pandemic is significantly affecting the real estate and mortgage industries. Showings, listings and sales are affected by social distancing standards, as well as disruptions to closings.
Meanwhile, market and rate volatility are adding to uncertainty in the market, which affects home price affordability, refinance incentive and risk for portfolio retention.
As unemployment rates have surged, so have forbearance requests, and the likelihood of mortgage defaults have increased. Throughout it all, technology is helping to mitigate some of the effects of the disruption in the industry.
“These are unprecedented times, for the world as a whole and for the real estate and mortgage industries specifically,” Black Knight CEO Anthony Jabbour said in a release accompanying the whitepaper. “The true effect of the nation’s response to the pandemic, including social distancing and shelter-in-place orders in some areas, remains to be seen. One thing is certain, though: the regulatory and operational issues this situation presents are significant.”
On the origination side, Black Knight’s whitepaper noted that the second and third quarters are seasonal peaks for purchase lending, and a 30 percent expected decline in the second quarter would result in a $113 billion reduction in originations – some 8 percent of overall volume for the year.
“That said, while the interest rate environment remains potentially volatile amid the fears of recession and historically low interest rates, we could still see increased refinance activity, as homeowners try to lock in the lowest rates possible, freeing up monthly cash and providing a liquidity buffer against economic uncertainties,” the whitepaper stated.
Originators already had been shifting to a refi-heavy market as mortgage rates plummeted at the start of the year, and as recently as mid-March, Black Knight found that there were nearly 13 million high-quality candidates for refis, a 60 percent increase just since the start of 2020.
“The population remains extremely sensitive to even the slightest rate movements, with a shift of 12.5 basis points in either direction adding or subtracting more than a million borrowers from the potential refinance rolls,” the whitepaper stated. “For weeks, lenders had been struggling to deal with a surge in refinance volume, with some even taking to pricing above prevailing rates as a way to stem the tide. This was the case even before lenders were adjusting to a work-from-home stance. If that sort of volume were to return, the struggle would likely be compounded by COVID-19-driven office closures, particularly for lenders who have not embraced mobile technology to allow their loan officers to continue to work from home.”
Black Knight found that the potential for delayed or canceled closings persists, which could have an effect on both purchase originations and cash sales.
“Many county recorders have yet to fully digitize operations, and as such depend upon high-touch, manual processes for both input and production of property records. Shelter-in-place orders or even widespread social distancing efforts could hamper their ability to fulfill their part of the process, which could reduce the volume of both purchase and refinance lending along with overall real estate transactions,” the whitepaper stated.
Appraisers who are dealing with shelter-in-place orders and social distancing requirements are turning to technology to help continue their work in the real estate process.
“However, certain critical aspects of the process – such as onsite property appraisals required by federal regulations – have traditionally demanded in-person interaction,” the whitepaper stated.
On the closing side, Black Knight stated that any delay or disruption to securing title and/or escrow could negatively impact closings, with closing delays or even cancellations being a risk. It found that business continuity plans at title and escrow offices – in many areas a matter of law – will help to mitigate this issue.
“Additionally, anecdotal evidence suggests closing agents have been inventive in adapting to the current reality, holding closings outdoors and increasing mobility,” the whitepaper stated.
Among its recommendations to handle the business disruptions was the increased use of technology, by real estate professionals at the start of the transaction to allowing virtual showings and interactive communications all the way through remote online notarization capabilities.
“It is also important to remember that – while we still do not know the true scope, length or cost of this pandemic – this may ultimately prove to be a temporary situation,” the whitepaper stated. “When the smoke clears and the economy regains its footing, there is likely to be massive pent-up demand for housing. Moves the industry makes today to meet the specific challenges of the day could also help pave the way for a more seamless real estate transaction in the future.”
Jabbour said Black Knight’s commitment to support its clients remained the company’s top priority.
“The right technology partner is critical in times such as this. As our clients’ business partner, it’s essential for us to provide them both a truly holistic view of the mortgage and housing lifecycle and near real-time data and actionable intelligence for effective decision-making,” he said.