Only weeks ago, thousands of borrowers were rushing to take advantage of record-low mortgage rates. Refinance applications soared over 400% annually, and homebuyers were out early and in force.
Now some of those loans are stuck in limbo as the in-person closing process can no longer be held because of the coronavirus pandemic.
State, county and local governments have shut down or are limiting the number of people who may enter their offices, including property recording centers.
That puts the whole system at risk, as title insurers are less able to conduct the research that goes into issuing a policy. The ability to record documents is also getting tougher as county recording offices close.
"We are working with many of our industry partners to track information about county recording office closures, their e-recording capabilities and whether counties have online services that allow the completion of title work and electronic recording," said Diane Tomb, CEO of the American Land Title Association.
Currently, nearly 2,100 counties provide some electronic access to their property records, but that means about a third of the jurisdictions still don't have the ability to accept digital documents, according to Tomb.
"While they may allow for electronic recording, many jurisdictions do not provide access to records online. The biggest holdup to bringing county governments to the digital age has been time and money," she added.
One large lender explained that it's a bit of a moving target now and varies by state. Where title companies are still open, the closings are proceeding as is. In some areas, they are partnering with third parties to arrange video closings.
In an effort to get the whole system moving, Sens. Kevin Cramer, R-N.D., and Mark Warner, D-Va., introduced the Securing and Enabling Commerce Using Remote and Electronic Notarization Act of 2020. It permits immediate nationwide use of Remote Online Notarizations, a type of electronic notarization where the notary and signer are in different physical locations.
"At a time like this, when we have perhaps, for many people, really a once-in-a-lifetime refinancing opportunity, they could miss out on that because of social distancing — miss out on that because you can't get a group of people in a room, that would be a great tragedy," said Cramer. "Marketwide you have financial institutions participating, you have a major consumer piece, and the consumer drives the market in this country, plus you're going to move a lot of product a lot better."
Right now, 23 states allow remote electronic notarization, but there is pushback from some that are concerned about states' rights. They consider this a federal mandate. California, which has one of the most active and valuable real estate markets in the country, is one of those states.
"We've had some resistance from senators from those states that feel like even with the interstate commerce clause this would force something on them they're not ready to accept."
Already other parts of the mortgage process have shifted to accommodate social distancing. The FHFA this week directed Fannie Mae and Freddie Mac to change some underwriting guidelines, including allowing appraisal alternatives that would reduce the need for appraisers to enter the home for inspection. These are commonly called drive-by appraisals, where the appraisal uses data about the house available online.
The FHFA said: "In the event lenders cannot obtain verbal verification of the borrower's employment before loan closing, the Enterprises will allow lenders to obtain verification via an e-mail from the employer, a recent year-to-date pay stub from the borrower, or a bank statement showing a recent payroll deposit."
It did emphasize that lenders should continue to utilize sound underwriting judgment, "to ensure these alternatives are appropriate to the borrower's circumstances."