4 Ways Home Buying May Have Changed Forever

Coronavirus has changed consumer behavior in many ways, some of which haven’t fully revealed themselves yet. And when consumer behavior changes, so must the behavior of the businesses those consumers patronize. Financial institutions are no exception. Community FIs are searching for ways to adapt their services to what may be a permanently changed world, and homebuying is a big part of that world. 

How lenders and consumers interact with each other post-virus is still an open question. But with respect to the mortgage world, the one thing that is clear is that FIs need to be ready to serve homebuyers differently. 

In this article, we’ll discuss four things credit union and community bank leaders and loan officers should be aware of as the housing market continues to be affected by COVID-19.

1. Digitization could become the norm

Consumers in many markets have opted to “view” and even make purchase decisions on homes based entirely on the basis of virtual tours. These borrowers don’t want to risk their health with in-person interactions, even for a purchase as major as a home. At the height of pandemic, real estate leader Redfin reported that video tour requests rose 30-fold. Meanwhile, Zillow said it saw a 191 percent increase in the number of 3D home tours in March compared to February. If a flare-up of the virus occurs again, as medical experts suggest it could, video and 3D tours could again see a spike in demand. 

So what does this mean for FIs? Well, for larger community institutions that handle most of the mortgage process themselves, it could mean now is the time to invest in technology that allows the FI to keep pace with the expectations of borrowers. If borrowers can get virtual home tours and other digital help, they may expect similar capabilities when it comes to interacting with loan officers and other members of the team.

For smaller institutions, it means having a retail mortgage partner that is equipped to handle the demands of today’s borrowers. Modern technology, strong underwriting practices and more are all critical things for your partner to have. 

But remember, even in a digital world, the importance of personal service is still there, and may be more critical than ever. Whether you handle mortgage loans mostly in-house or rely on a partner (such as Servion, with our various mortgage partnership options), you’ll want to make sure you’re prepared to deliver the experience your borrowers deserve.

2. This crisis is not the previous crisis

The coronavirus has devastated the economy, yet the housing market has so far remained robust. Aside from a very pronounced halt when the virus first hit, the housing market has performed quite well. This is starkly different from what happened in the Great Recession, when housing prices fell by more than 30 percent and millions of people lost their homes. 

The difference? The last crisis was caused by housing – there was too much credit, people obtained mortgages they couldn’t afford and a massive housing bubble eventually popped. Today’s crisis was caused by a virus, not by self-inflicted lending wounds. Additionally, it appears that society and government did learn at least a few things from the Great Recession, as shown by the government’s rollout of the CARES Act and the Federal Reserve’s decision to buy unlimited amounts of mortgage-backed securities (MBS) to stabilize the housing market (as you may remember, MBS was one of the core problems in the Great Recession). These government actions may not be perfect, but they were swift and helped prevent an outright collapse.

For FIs, this information matters because you should be having much different discussions with borrowers today than you did a decade ago. Today, no lender should be under any illusions about a borrower’s qualifications for a mortgage – regulatory rules and lessons learned from the past have shown that in a period of crisis, it’s not a good idea to have someone with tenuous financial wherewithal buying a house.  And for borrowers who come in and are qualified and prepared to buy, you can assuage their concerns about potential market collapse. Obviously no one can predict the future, but you can talk to them about how the core components of the housing market so far appear resilient this time around.

3. Suburbs vs. Cities

According to USA Today, Redfin and several other sources, the suburbs may see significant growth, as the virus has made many buyers wary of the population density inside cities. A Harris Poll conducted at the end of May shows that nearly one-third of Americans were thinking of moving to less densely populated areas. And, it showed 43 percent of city dwellers had recently looked online for a home to buy, whereas only 26 percent of current suburbanites had searched for a home.

Remote work, which looks like it will become more of a fixture than before, is also driving an interest in suburbs. There is less need to be close to job centers in a remote environment. Further, homes in the suburbs may have different features, including a room that could be used as a home office. The National Association of Realtors said recently than 13 percent of its members reported that clients were now prioritizing having an extra room for an office or to accommodate relatives – features which are more readily available in suburban homes.

Community FIs should be ready to attract potential homebuyers seeking to move outside major cities and into smaller communities. If you currently offer mortgages, are you doing a good job of letting people know? You’ll want city dwellers to know you’re available to help them if they do decide to move to an area near you. 

And if you don’t offer mortgages, now is a great time to consider getting support from an outside partner. Servion specializes in supporting the mortgage efforts of community banks and credit unions, and we are always ready to help. 

4. Closings may finally go online

The paper-heavy process of buying a home has been poised for an overhaul for years, and the COVID-19 pandemic may finally spur things long. The truth is, many real estate brokers and mortgage companies have been going more and more paperless in recent years. The laggard has been the title process, which still often requires wet signatures on documents. 

Coronavirus may spur more states to update their laws to allow e-closings. There are three types of e-closings, however, and two of the do involve in-person meetings:

• Hybrid e-closing: The borrowers and notary meet in person, and they sign some documents digitally and they sign some documents traditionally," Banfield says. Most e-closings are of the hybrid type.
• In-person e-notarization, or IPEN: The borrower and notary public meet face to face. All the documents are digital and are signed electronically on a tablet or computer and digitally notarized.
• Remote online notarization, or RON: All documents are signed electronically, and the borrower and notary meet by webcam instead of in person.

RON is the “holy grail” that many lenders and borrowers would like the most because it is fully electronic. And in a pandemic world, it could be possible that states will be more prone to allow RONs in order to minimize face-to-face interaction. In fact, the Mortgage Bankers Association reported in May that the governors in 19 states passed executive orders to enable online signings after the pandemic hit. While these executive orders are temporary, if this “trial run” goes well, perhaps we can look forward to wider adoption of true e-closings. 

What other changes in homebuying can you envision?

These are just a handful of the things community FIs should be thinking about and preparing for in a world of pandemic-induced change. There are surely many more. What else is on your mind about the mortgage lending process these days?

If you’re a current Servion partner, never be afraid to give your account executive a call to discuss. And if you’re not yet a partner, check out our partnership options and consider contacting your nearest Servion representative to find out more about how we can help you serve today’s homebuyers.