Social distancing likely to affect physical mortgage closings
Even as mortgage application volumes climb, the physical ability for those loans to close could be in question as authorities call for social distancing to prevent the spread of Covid-19.
While electronic closings are a possible solution, they run into state law impediments such as the permissibility of remote notaries.
Government agencies are making policy adjustments for some in-person requirements related to mortgage processing, but not all, and closings do not appear to have been addressed to date.
Social distancing measures include limiting large groups of people coming together by closing buildings and canceling events. This includes keeping people apart at a radius of between three and six feet.
Some county recorder offices are shutting their doors because of the coronavirus and that is affecting whether a loan can close, according to a notice from Equity National Title to its clients.
"If a recording office is closed to the public, but has staff available to accept recording documents either through the mail, FedEx or electronic means, we can close the loan as long as we are also able to have access to online recording data to update our searches before closing. In some instances, we will also have to have access to tax information."
"If a recording office shut down and will not accept recording documents, we cannot close the loan," the notice signed by company president Jim O'Donnell said.
Whether the transaction will close is a rising concern, but has not been a dominant one yet. Just under four-in-10 respondents (38%) to a California Association of Realtor member survey conducted between March 6 and 9 said they expect the closing to be negatively impacted by the coronavirus, while 53% said there would be no impact.
There have been few instances so far where consumers have balked about coming in to an office to sign the closing documents. Patrick Stone, chairman of Williston Financial Group, a title underwriter and settlement service provider in Portland, Ore., knew of only one instance, an elderly couple in Spokane, Wash., that objected to coming to an office. So the company was able to arrange for a mobile notary to come to them.
Yet there are concerns developing about personal safety, even with a small group of people in the room.
"I'm seeing it mostly with my clients in places of higher population density, such as urban centers, where obviously everyone is seeking to cut down on touch points," said Marx Sterbcow, an attorney in New Orleans. "So whether that's using an e-closing where available, or cutting back on face-to-face meetings where it's practical, industry professionals are definitely starting to make some adjustments."
Purchase mortgage loan closings in particular have more people involved because both the buyers and sellers are present along with their respective attorneys, as well as the settlement services provider representatives and even the lender's attorney and the real estate agent.
In that environment "at some point there's going to be a problem," said the Principal at Silver Fin Capital, Richard Pisnoy, a Great Neck, N.Y., mortgage originator. "We like to think the coronavirus is going to be relatively mild for most people. But it's not about most people, it's about who that affects after the fact.
"So people are going to take into consideration. Until there is a vaccine or some sort of medication for someone that has a compromised immune system, what are you going to do?" he continued.
Closing procedures for transactions scheduled by Covius have not changed as of March 13, said Executive Vice President Joe Chappell. "The process associated with the closing is driven by the relationship with the consumer and the lender," he explained.
But all the talk about social distancing could lead to a shift in thinking in the near future. "I would anticipate a growing unease of interacting with 'strangers' including a mobile notary or the two 'strangers' you might be sitting with at a title office. I think people will be trying to limit their social interactions and that would include the closing process, as well as the appraisal process," Chappell said.
"I don't think it will keep people from going through with their refi or purchase transactions, but it is certainly going to make them more wary and particular about the experience. There are some great benefits to an e-closing including speed, quality, convenience and security. We can now add 'the ability to limit physical interaction' to that list," he said.
After a meeting between mortgage industry participants and the National Notary Association, the trade group has created a health screening declaration to be signed by the notary and the borrower as a recommended best practice before each transaction.
"Your health and safety, and that of borrowers and signers, is the top priority of the NNA and industry officials, and each closing will need to be evaluated and handled on a case-by-case basis," a posting on the organization's website said.
Remote closings could be an answer to the problem. "At this time we have not yet not seen a dramatic shift to remote closings due to the coronavirus within our customer base; however, we anticipate to see a rise in remote closings as companies and consumers continue to take coronavirus precautions," said Landon Smith, executive vice president of client strategy and business development for The Closing Exchange. "As more companies implement travel bans and work-from home options we anticipate lenders and title agents to seek convenient remote closing options for their customers."
Reports are that some title insurers are loosening their requirements and are now willing underwrite transactions using remote online notaries, whether specifically permitted by state law or not.
Prior to the end of 2019, 13 states had RON laws in place, with four more set to implement it on Jan. 1 and five more at some point this year.
But some states require notes and other documents to be "wet signed" or have a physical signature.
And even if there is temporary acceptance of a full e-closing where it not permitted now, down the road there could be an issue, Pisnoy said.
In New York, many refinancings are done using a Consolidation, Extension and Modification Agreement. With a CEMA, the borrower saves on the closing costs.
But the origination loan documents are needed for the CEMA and an electronically signed note might not be permissible.
So the unknown is that years down the line how doing an electronic closing even under a temporary approval could affect a subsequent transaction, Pisnoy said. Consumers in other states may have find themselves in similar circumstances.
Using a mobile notary is common for WFG, Stone said, and it likely to see the practice increase "because as concerns grow, [consumers] are not wanting to go to a conference room."
But the company is also being proactive in protecting its workers and clients. It set up separate closing rooms in the Seattle area so it doesn't have large groups of people waiting and congregating.
"We have a published pandemic plan. We've posted in all our conference rooms about not shaking hands. We've got wipes, we've got sanitizers, we've got everything in the book and we are encouraging everybody to use it right now," Stone continued.
At the end of the day, keeping people healthy is the foremost concern. "We're doing everything we can to make sure the awareness is very high among our employees in our interactions with our clients in a safe manor. We're as concerned as everybody else is," Stone said.