How COVID-19 Transformed the Mortgage Industry

Covid-19 changed the dynamics of people's lives and reshaped the landscape of the business world overnight, including the mortgage industries. The following is an exploration of how Covid-19 has affected the mortgage sector with Jason Waters of the Jason Waters Lending Team powered by Affinity Home Lending: including market shifts, policy adjustments, and a forecast of potential future impacts on home buyers and lenders.


Market Changes and Interest Rate Volatility

Perhaps the most immediate—and interesting—impact of COVID-19 has been mortgage rate volatility. With central banks worldwide not just reducing central interest rates but literally taking them to zero in an attempt to goose the economy, mortgage rates have followed suit, attracted like moths to the snowball in a so-far unending boom in refinancing as homeowners scramble to benefit from these historically low rates.


Impact on Refinancing:


  • Surging Refinancing Applications: The Mortgage Bankers Association reports that refinance applications increased 200% during the pandemic.
  • Processing Delays: Like most other services, increased refinance caused massive processing delays, which frustrated many homeowners.


Impact on Home Purchases:


  • More Affordable: Lower interest rates made borrowing cheaper, which continued to buoy the housing market in the early, uncertain months of the pandemic.
  • Competitive Market: With lower rates attracting a lot more buyers to the market, bidding wars became the norm, sending prices up.
  • Remote Work and Demand for Housing: Remote work was pushed to new heights during the pandemic, and so was the change in how many people view housing. Most professionals no longer had to work at, or near, their places of work, with several massive impacts on the mortgage industry.



Suburban and Rural Demand:

  • Shift to Suburbs: There was a noticeable shift of demand from cities to suburban and rural areas, where it is easier to afford a larger home to include home office space.
  • Inventory Shortages for Homes: This shift created a lot of inventory shortages in many suburban markets simultaneously, pushing home prices higher through competition.


Impact on Mortgage Products:

  • Increased Interest in Jumbo Mortgages: Mortgage activity drove a surge in jumbo mortgage demand, where the mortgages involved were in excess of the conforming loan limits.
  • Lender Reaction: Lenders quickly had to react to these shifting trends. More often than not, it meant changing their existing suite of mortgage offerings, or in some cases, creating new ones.


Policy Changes and Support Measures

  • Governments and global financial institutions introduced various support measures to lessen the economic fallout of the pandemic, which, in turn, was felt directly in the mortgage industry.


Forbearance Programs:

  • Temporary Relief: Forbearance allowed borrowers to pause or reduce mortgage payments without penalties, offering short-term help during the worst of the pandemic.
  • Long-Term Implications: These same programs both helped and created problems for both lenders and borrowers when payments resumed.


Regulatory Adjustments:

  • Eased Lending Standards: A small number of regulatory bodies eased the lending standards to ensure that credit kept flowing.
  • Increased Scrutiny: As conditions stabilized, lenders took a more conservative stance, increasing scrutiny of the financial positions of prospective borrowers.


The Future of the Mortgage Industry

  • So moving beyond the immediate impacts of COVID-19, what does the future hold for the mortgage industry? Jason Waters provides more detail on upcoming trends and potential challenges.


Sustained Low Interest Rates:

  • Economic Stimulus: Look for central banks to continue to keep interest rates low to stimulate the economy.
  • Continued Refinancing Opportunities: A good opportunity for homeowners that haven't yet refinanced.


Technology and Digital Transformation:

  • Emergence of Digital Mortgages: The pandemic increased the speed of solutions for digital mortgages—instant home valuations, virtual features for home tours, and e-closings. The processes will continue to be optimized for better experience.


Housing Preferences:

  • Remote Work: If companies around the world continue practicing the remote or hybrid working model, then the offices in a home will be more in demand.
  • Urban Return: If recovery will continue, we might see a comeback of the cities, especially with younger populations.


Economic Uncertainty:

  • Potential Market Corrections: Strong home growth coupled with the pandemic's impact results in unprecedented potential for market corrections, especially with rising interest rates and/or another economic downturn.
  • Affordability Challenges: Affordability issues in high-demand areas are challenging to crack, which will remain a thorn in place.