Mortgage industry prepares to weather the coronavirus

While interest rates that have moved lower because of the coronavirus have boosted loan volumes to date, there are fears that a possible spread of COVID-19 could later slow mortgage originations.

The industry is benefiting from the increase in refinance volume, but now that the disease has spread well beyond the borders of China, businesses could have their operations interrupted. At the same time U.S. consumers may put off activities such as buying a home as they are concerned about getting sick, at least for the short term.

"Prior to the financial market volatility of this week, the purchase market for 2020 was looking quite strong," Mike Fratantoni, the Mortgage Bankers Association chief economist, said in an email. "The strong job market and rapid pace of household formation, coupled with some increase in available inventory, set the stage for a stronger spring market. Even lower mortgage rates are going to be supportive of this strength."

"However, the plummeting stock market is likely to cause at least some households to pause. I would not be surprised to see that show up in the data, but would expect a significant rebound in purchase activity once the uncertainty begins to diminish," he said.

With January's warm weather giving a stronger-than-expected, temporary boost to the purchase market, Ricky Goyette of Fannie Mae's Economic and Strategic Research Group said in an online note that he remains bullish even with the disease's headwinds.

"While coronavirus fears may dampen housing market sentiment going forward, for now, the associated decline in interest rates will likely help bolster housing activity," Goyette said.

"According to Freddie Mac, the average yield on 30-year fixed-rate mortgages fell four basis points [last week] to 3.45%, the lowest since October 2016, and could potentially fall further if worries persist," Goyette continued. "Pent-up demand from years of inadequate new-home production is also an upside risk to housing, though sales will continue to be weighed upon by the lack of inventories."

But for the mortgage business to keep functioning in any scenario, its vendors need to be taking precautions in their own shops, not just to prevent the spread, but keep their customers minds at ease.

Black Knight, as part of its normal business disruption planning, just happened to conduct its annual pandemic exercise on Jan. 14, said Chief Risk Officer Peter Hill in an interview. The company operates the largest mortgage servicing platform, as well as a loan origination system.

"We get a significant number of critical resources across the company, and go through what happens if there is some sort of pandemic activity," Hill said.

On Jan. 21, the company started actively monitoring the coronavirus' progress and three days later started active reporting. Black Knight has three main U.S. offices in Jacksonville, Fla., Houston and Irvine, Calif., several smaller offices in the U.S. and two locations in India.

There were only three active cases in India, and all recovered, Hill noted.

Internally, Black Knight posted reminders about proper hygiene in its restrooms and increased the number of sanitation stations, including providing more hand sanitizer dispensers.

"We certainly don't take this lightly, even though we still believe the risk is low," Hill said. "It's something we would do to make sure we're protecting our employees. We also want to make sure we're protecting the business. What we're doing right now is out of an abundance of caution. This is typical procedure for us."

The company has multiple business continuity plans, for different scenarios. We have had some inquiries from our clients," Hill said. "And they're certainly been more than pleased with the actions we've taken so far.

"In addition to that, I've gone out to our vendors, and said 'what are you doing?' and 'Is there any potential impact to our services?'" adding Black Knight needs to if they are accessing their risk level and how they are handling the situation.