In quick response to the global pandemic, the Federal Reserve took decisive action to shore up the economy, buying hundreds of billions of dollars of mortgage-backed securities. The aim was to provide banks and credit unions with extra liquidity to help struggling borrowers as unemployment soared and businesses closed.
However, several large banks took a different approach to shoring up capital and liquidity, by raising borrowing standards and suspending home equity lines of credit. At some of the biggest financial institutions, baseline credit scores and employment standards have risen, and at least one bank has reduced lending maximums as well as the ratio between property value and loan amount, according to American Banker.
As the bigger banks close many customers out of borrowing and refinancing, they are opening opportunities for credit unions to seize market share while assisting community members most impacted by the COVID-19 crisis.
Unsurprisingly, the housing market has seen regional ups and downs since the pandemic started. These regional differences, however, point to one of the main advantages that credit unions have when seizing the opportunity created by big banks. As members of the community, these institutions are more in touch with regional market differences and can act according to local market indicators. It is a leeway that larger banks do not always have.
The flexibility to act at a regional level is also important for refinancing. By early May, refinancing volume was up 210% over the previous year. As homeowners rush to take advantage of the current low rate environment, it is an attempt to free up cash from overtaxed family budgets, providing credit unions with an opportunity to support members during the crisis.
Preparing For The Refinancing Opportunities
As housing markets rebound, homebuyers are already facing a changed landscape. Many experts predict that COVID-19 will be hard to eradicate and could impact society for months to come. For homebuyers, that means fewer houses on the market, virtual showings, and remote meetings — all situations that make the process of buying a house more challenging. In this landscape, finding access to financing should not be something that qualified buyers have to add to their list of challenges.
By the end of last year, McKinsey was reporting a marked increase in the call for digitization in mortgage. A survey conducted by the company concluded that 24-hour access to updates and instant pre-approvals were top customer priorities. Sixty percent of customers reported feeling comfortable with online mortgage applications, and an additional 30% felt confident using a hybrid model, incorporating online applications with in-person or phone support.
While credit unions have the advantage when it comes to acting on regional housing conditions, smaller is also better when it comes to agility. Credit unions have more options at their disposal, to quickly implement the virtual lending tools needed in a social distancing society. Capabilities like online applications, e-signatures, and remote notarizations will have a decided impact on credit unions regardless of the path that the COVID-19 virus takes.
In the middle of March when states began to issue stay-at-home orders, transaction volume through Finastra’s ProSign Online electronic signature platform increased 335% over a three-week period. As lenders began processing CARES Act stimulus financing, Finastra saw a sharp 852% increase in the number of electronic signatures for the nine-day period beginning April 6. These numbers underscore the necessity of e-signatures in lending and how critical the capability is to a social distancing economy.
The Future Of Mortgage Lending — Digital
When it comes to mortgage in the uncertain era of COVID-19, digital services such as online applications, e-signatures, and remote notarizations, will be critical for homebuyers and homeowners needing to access financing. Consumer preferences for digital services could easily become even more of a future need as mandates make it difficult or impossible for in-person contact.
Fortunately, for credit unions, the accessibility of third-party solutions, combined with fast implementation, can help these local financial institutions seize the current mortgage opportunities.
Learn more in this e-book Moving Forward with Mortgage or contact Finastra to speak to one of our experts about digitalizing your mortgage lending.