The outbreak of the COVID-19 virus has created havoc in the financial markets worldwide. Mortgage lenders are not an exception. While the virus spread has caused a lot of anxiety and panic, it has also created a unique set of circumstances for mortgage lenders, which can be referred to as the perfect storm. In this article, we will explore the various ways in which the virus scare has impacted mortgage lenders.
Increased Demand for Refinancing
One of the immediate impacts of the virus scare has been the reduction in interest rates by central banks. This has led to a surge in demand for refinancing as homeowners look to take advantage of the lower interest rates. Mortgage lenders have seen a significant increase in the number of refinancing applications. The increased volume of applications has put a strain on the resources of mortgage lenders, which has resulted in delays in processing the applications.
Difficulty in Closing Loans
The virus scare has also created difficulties in closing loans. With many countries in lockdown, it has become challenging to conduct property appraisals, inspections, and other due diligence activities. Mortgage lenders have had to rely on virtual inspections, which are not always reliable. This has resulted in delays in closing loans, which can impact the cash flow of mortgage lenders.
Increased Risk of Defaults
The virus scare has caused widespread job losses and business closures, which has increased the risk of defaults on mortgage loans. Mortgage lenders are concerned that borrowers who were previously in good standing may now struggle to make their mortgage payments. The increased risk of defaults has led to mortgage lenders tightening their lending standards, which can make it difficult for new borrowers to qualify for a mortgage.
Increased Operational Costs
Mortgage lenders have also had to deal with increased operational costs as a result of the virus scare. The costs of implementing remote working solutions, providing personal protective equipment, and sanitizing workspaces have added to the overhead costs of mortgage lenders. These costs have to be factored into the pricing of mortgage loans, which can make them more expensive for borrowers.
Difficulty in Raising Funds
The virus scare has also made it difficult for mortgage lenders to raise funds. The economic uncertainty caused by the virus has made investors more risk-averse, which has resulted in a reduction in the availability of funds. Mortgage lenders who rely on securitization as a source of funding have seen a reduction in the demand for mortgage-backed securities. This has made it difficult for mortgage lenders to originate new loans and has also impacted their ability to refinance existing loans.
Conclusion
In conclusion, the virus scare has created a perfect storm for mortgage lenders. The increased demand for refinancing, difficulty in closing loans, increased risk of defaults, increased operational costs, and difficulty in raising funds have all impacted mortgage lenders. It is important for mortgage lenders to be proactive in managing these challenges and to adapt to the new normal. Mortgage lenders who are able to do so will be better positioned to weather the storm and emerge stronger on the other side.