Mortgage lenders are facing unprecedented questions with the outbreak of COVID-19. While the stock market is in tumult and uncertainty is roiling, mortgage rates have again fallen to historic lows.
David Stevens, former US Assistant Secretary of Housing, and former CEO of the Mortgage Bankers Association, shared his advice with Mortgage Media on what lenders should be doing, faced with the impacts of the coronavirus.
There has been a very strong purchase market, with the only headwind being a relatively low inventory, Stevens said. Now, with rates dropping, the refinance market is just as hot as the purchase market.
“Now you’re seeing just volume galore around the country,” Stevens said, pointing to the 10-year treasury, which has dropped to record low levels, just over the past week.
Despite the hot market, Stevens has words of caution for mortgage companies.
“If I had my lender hat on and I was running a company, particularly one that retained risk, I don’t know how bad this coronavirus impact is going to be,” he said. “This will impact so many people and so many industries that I think lenders need to be wary of, ‘Is my borrower’s income as stated at risk?’ I would be doing potentially verbal employment verification calls preclosing on any of my pipeline right now just to confirm the probability of continued employment.”
With the uncertainty of the spread of the virus, Stevens points to probability of continued employment as a potential risk. “Ultimately, does that impact bonuses, revenues expected and more and could that affect ultimately the core value proposition to getting a loan, which is your employment? That part is a question that needs to be discussed by lenders across the country.”
The concern is that if coronavirus hits the U.S. similarly to how it has in Italy, it means loans are being given to people who may be facing job risk.
Stevens pointed to contractors as another example. “Federal contractors are massive, supporting every agency in the government. There are millions of them. They only get paid if they go to work. These are the kinds of things that raise concern as we look forward.”
Stevens said he would advise lenders to bring together key executives, including risk management, to talk about “what if.”
“I think these first rules may come from investors themselves and something along the lines of prefunding verification checks of employment for probability of continued employment would be important,” Stevens said, cautioning that it might not help a lot. “But especially now because it’s still just unknown and everybody’s still moving along in their businesses as usual, and many are planning to swallow the costs.”
Stevens recalled the words of his mentor, Herb Sandler, the CEO of Golden West Financial which owned World Savings.
“He always told me, ‘Worry the most when things are best.’ His point was markets will correct, things will adjust, and you’ve got to be sharpening your ax as it were for what happens after this boom,” Stevens said. “This boom … it’s going to end one way or the other. Rates are either going to rise, or we’ll have burn out, and will have refinanced the world. Or this virus could also be a challenge for us.”
In the meantime, Stevens advises companies to prepare, and have those discussions in advance. “Be thinking about ‘what could happen if.’ It doesn’t take a long time to do that. You can just begin to have your senior executives thinking about it.”