Coronavirus: Bureaucracies in mortgage dealings

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Heather Morris wanted to pull some cash from her Georgia home to pay for renovations, and she was eager to take advantage of rock-bottom mortgage rates. But when her lender told her in March that it could take six months to process her refinancing, Morris wasn’t hopeful.

“I didn’t think it was going to happen,” Morris recalls.

She persevered, and Morris’ refinance with Navy Federal Credit Union closed in mid-May. In addition to a longer-than-normal wait, Morris experienced other oddities — such as donning a mask and staying inside her house while a masked notary stood on her front porch. They passed documents back and forth through the front door. “Doing the paperwork was different,” Morris says.

As Morris saw firsthand, the mortgage industry is coping with a one-two punch that has complicated the process of refinancing. First, a drop in rates in March led to an avalanche of applications. Then the coronavirus pandemic disrupted long-established processes for guiding refinances through the lending system.

As a result, a refinancing process that once required just three or four weeks now can drag on for eight or nine weeks.

“The clients understand what’s happening, and they’re dealing with it,” says Joe Rodriguez, vice president of residential lending at Provident Bank in Jersey City, New Jersey.

First, applications spiked
In March, mortgage rates fell to historic lows. That led to a flood of applications from homeowners looking to lower their rates, or to take advantage of equity gains delivered by a decade of rising home values. “The whole industry got slammed in March with new applications,” Rodriguez says.

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Inevitably, all those new applications created backlogs. “Our volume went up 400 percent,” says Kevin Parker, vice president at Navy Federal Credit Union. “Imagine anyone having 400 percent more work.”

Navy Federal has been warning borrowers like Morris that the process could take up to six months, although Parker says it rarely drags on that long.

Approving a mortgage is a complicated process, one that requires a lender to validate a borrower’s income, check the value of the home being used as collateral and scrutinize the title history of the property.

Then the pandemic changed how refinancing is done
Just as refinancing applications picked up, the coronavirus pandemic dramatically changed the way everyone in the mortgage industry works. Loan officers no longer go to the office. Appraisers stopped walking through houses. And no one gathers around the title company’s closing table.

“We had to figure out how to deal with the virus and still do business,” Rodriguez says. “The process is a little slower because everybody’s working from home right now. Things that would take an hour to do are taking a day sometimes.”

For instance, Rodriguez and Parker both say it’s harder to verify a borrower’s employment. A task once dispatched with a quick call to the borrower’s human resources department now means leaving a voicemail and waiting a day or two for a response.

The combination of large volumes of applications and the coronavirus’ curveball means loan processors must be meticulously organized, says Ed Conarchy, a mortgage adviser at Cherry Creek Mortgage Co. in Gurnee, Illinois. “Any trip-up in meeting those important milestones and the refi process can unravel,” Conarchy says.

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Meanwhile, homeowners looking to refinance may have to get in line behind buyers who need a mortgage so they can close on a house.

Signing mortgage documents in driveways or by video
The mortgage industry already had been digitizing, and lenders quickly adapted to many changes. One stumbling block, though, is that most lenders still require some documents to be signed in the presence of a legal witness and notarized — “wet ink” signatures, in industry jargon.

That was what led Heather Morris to put on a mask and pass papers to the notary on her front porch. Morris’ elderly mother was staying with her, and she didn’t want to take a chance by letting someone into the house.

Outdoor signings have become something like the new normal, says Navy Federal’s Parker. “We’re seeing settlements being done in driveways, or on decks.”

And sometimes, documents are being signed remotely. Jim Campagna, founder of SnapFi, a mortgage lender in San Jose, California, says he pulled off his state’s first remote online notarization in early May.

California requires notaries to personally witness the signing of documents, but the state has relaxed those rules a bit during the pandemic. That led to Campagna’s client, a Silicon Valley homeowner, signing documents while a notary in Virginia looked on by videoconference. To prove his identity, the borrower held up a driver’s license to his computer’s camera.

Campagna hopes remote online notarization grows more common, and allows for refinancing to complete its transformation to an all-digital exercise.

“The majority of our other documents have been digitized for some time,” Campagna says. “So what’s really been holding back the transaction is the notarization process.”

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What you can do to secure a smooth refinance
Here are a few ways you can make the refi process as smooth as possible:

Get your paperwork in order. Don’t let something simple like a missing document delay your refinance. Collect PDFs of financial documents — including pay stubs, bank statements, tax returns and retirement accounts.
Make sure the lender will honor your rate lock. In normal times, lenders extend rate locks for 30 to 60 days, meaning you won’t have to pay more if rates go up before your loan closes. These aren’t normal times, though, and many refinances aren’t closing within 30 to 60 days, so make sure your lender is willing to extend your rate lock if your deal is delayed.
Keep your credit score tight. Now isn’t the time to miss a payment, take on new debt or otherwise do anything to lower your credit score. Lenders are being especially strict about borrowers’ credit histories.

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