Lending during COVID-19 has brought countless challenges to banks and financial institutions, as the world adapts to a remote work landscape and rapidly changing economy. In this time of crisis, borrowers are looking for ways to defer loan payments or refinance their mortgages, in order to reduce their monthly payments. Banks are dealing with a flood of refinance applications, in addition to the tremendous volume of small business loans being requested in response to federal stimulus policy.
Even the most mundane of tasks — making a stop at the bank, for example — are subject to a set of social distancing and sterilization standards that would have been nearly unthinkable a few months ago.
As Blend President Tim Mayopoulos noted in a recent op-ed, some changes that might help to slow the spread of coronavirus involve the complexity of state and local requirements. Namely, in most of the United States, an in-person notary is required at a mortgage loan closing. This requirement obviously presents significant challenges in light of the contact-reduction efforts that communities have put in place, with some semblance of them likely to subsist beyond these next few months.
Closing mortgage loans during COVID-19 with the SECURE Notarization Act
Tim Mayopoulos, President of Blend, explores this topic in detail in an article published on HousingWire. Ultimately, Tim makes the case for Congress to adopt the bipartisan SECURE Notarization Act, which permits the nationwide use of Remote Online Notarization (RON).
In the article, Tim draws on a past example of the federal government taking action to stabilize the housing market. During the Great Recession, the Home Affordable Refinance Program (HARP) enabled borrowers to take advantage of very low interest rates to immediately reduce their monthly payments. The government program was incredibly effective for borrowers during the financial crisis; more than three million eligible borrowers with primarily fixed-rate mortgages refinanced under HARP. With an average reduction of 1.45% in interest rate, borrowers had $3,000 in annual savings on average. While the Federal Reserve has reduced interest rates during COVID-19, people now face a new issue during this crisis: borrowers and lenders are often unable or unwilling to meet in person at the closing table.
It’s time, he says, for legislation to enable remote closings.
“In this crisis, with economic fallout all around us, borrowers are desperate to reduce their mortgage payments,” Tim said. “It’s one of the few things that might allow them to keep their homes and provide for their families. We should also want to keep the purchase market alive and enable buyers and sellers to complete home purchases.”
How would the SECURE Notarization Act work?
In order to safely provide remote notarization, the SECURE Notarization Act includes a consistent set of basic requirements. The Act would immediately enable the nationwide use of RON in real estate closings, with flexibility for States to issue additional requirements for transactions within their jurisdictions. To ensure security, the Act mandates:
- The use of video recording and storage technology
- Multi-factor authentication
- The use of tamper-evident technology
Finding fully digital lending during COVID-19
The idea of digital transformation, which has long been a talking point among banking leaders, is now a necessity. While the SECURE Notarization Act is a great step in the right direction for a fully digital homebuying experience, the reality is that lenders still have many gaps to close.
Like every other industry that has been forced to re-examine its practices with an eye towards reducing or eliminating virus transmission opportunities in the course of doing business, financial institutions must consider digitizing every aspect of their operating models. Many companies have taken swift action, and not without facing some challenges in doing so. But so long as business transactions can remain secure and efficient, Tim’s article would suggest, policymakers should follow suit with reasonable action.
“If we want to have a functioning housing finance system, we need to use modern, digital technology to close loans, whether it is a refinance or a purchase mortgage loan,” Tim said. “Unlike many other policy questions under consideration, this would cost taxpayers nothing. Lenders and borrowers alike should be calling on Congress to pass the SECURE Notarization Act immediately.”