Digital mortgage advances will remain after coronavirus, but path bumpy

The digital loan process improvements adopted during the coronavirus will remain, but future advances in automation at the government-sponsored enterprises could face some hurdles, according to panelists at a virtual event hosted by Moody's Investors Service.

"The way I think about COVID and the response is seeing the GSEs lighten up a little bit," said Faith Schwartz, president of consulting firm Housing Finance Strategies.

Leeway Fannie Mae and Freddie Mac have provided on things like appraisal requirements and the employment verifications have allowed mortgage companies to leverage digital technology in a different way and get pretty comfortable doing it through this crisis, she said.

"Not all of companies have availed themselves to leveraging digital tech," she said, but those using consumer source data in particular will see that it is a pretty disruptive to people that are using traditional means to originate and service loans.

What the mortgage business is now seeing is that the innovation from Fannie Mae and Freddie Mac over the last few years "really come to fruition here in this pandemic," said Bill Emerson, Quicken Loans vice chairman.

He commended the regulators, the GSEs and even the Federal Housing Administration for realizing that people are not comfortable with the normal level of contact during the origination and closing processes.

"What that's cascading into is a marketplace where the consumer gets used to a digital closing," Emerson said.

He pointed to the rapid adoption across multiple states since the crisis began of remote online notarization as an example.

"We've been working on that for years and was so hard to get momentum around that,” Emerson said.

Going forward, consumers are going to demand access to digital closings and not meet with someone face-to-face if they don't want to "and the regulatory environment and the legislative environment is going to have to catch up," he said.

That is not just for RON, but for things like what constitutes a licensed branch location, Emerson added.

"So many people are going to continue to work from home that the legislative landscape is going to shift and change as well," Emerson continued.

The technology behind the digital mortgage has been ready for a long time, Schwartz added.

But now the lending community has to make sure that the credit investors, like the GSEs, the bank portfolio lenders and the private capital providers, "get comfortable around knitting together these opportunities to have a much lower cost mortgage origination process.

"That's available today, and I would just say we've come a long way and the genie is out of the bottle on this," Schwartz said.

But there is room for improvement. For example, there are questions about how well the mortgage industry is using data and utilizing it from a marketing perspective, Emerson said.

Along with that, the associated question is how that data and the modeling can be used in an equitable fashion to serve all borrowers. There needs to be a focus on addressing algorithmic bias, he said.

But continued advances of any of the various processes adopted could depend on government-sponsored enterprise reform and the future of Fannie Mae and Freddie Mac.

Future technology advances could be challenged if the GSEs needed to concentrate on raising capital to exit government control.

"I do get concerned when trying to figure out new and better solutions takes a back seat to the GSEs coming out of conservatorship," Emerson said.

During conservatorship, Fannie and Freddie had really good leadership from the Federal Housing Finance Agency "to help the industry respond, start moving forward, get out of our darkest hours. They did a lot of piloting," said Schwartz.

"The capital markets as well as the other government agencies looked to Fannie and Freddie for guidelines, standards and processes. They are the mortgage market culture. Our mortgage market needs someone to look to and they've been very good at that," she said.

Emerson agreed with Schwartz, adding, "We are where we are today as an industry because of the innovation that was allowed to happen with the GSEs. They embraced the digital nature of a mortgage and gave the opportunity for processes to be streamlined and to truly give consumers a much better experience."

That being said, he added it was incumbent upon mortgage lenders to continue to leverage these technology gains.

"Frankly, a lot of us in this industry still use antiquated back end services and systems and we're not embracing that opportunity," said Emerson, whose Quicken Loans is seen as one of the leaders in the use of digital mortgage technology.