Saturday, June 15, 2024

Mortgage Refinancing in a Covidious Time

A brief note on mortgages in a covidious time...

Back in June 2020, we refinanced our mortgage to take advantage of lower interest rates - never let a crisis go to waste and all that. For what it's worth, we went from a 4.5% 30 year mortgage to a 2.5% 15 year loan, saving something like $200,000 in interest payments.

This being America, perhaps with the savings we've made, one of our children will be able to afford a year of university when the time comes - or hopefully a semester, one can always dream (stay on topic, man, tackle spiraling higher education costs another time).

This was at the height of the pandemic and although lockdowns were lifting, vaccines were not in sight, the whole world was in upheaval. Luckily, The Wife and I still had jobs and were working from home - albeit I had taken a 20 percent salary deferral as The Company sought to preserve cash and cancelled all chip orders and such, snarling up the supply chain in the process (but I digress yet again - car company executives are not often lionized for their financial savvy, call it herd mentality in a time when we were all seeking herd immunity).

Anyway... we saw interest rates at historic lows and tried to act.

Sidenote: I had never seen a faster reaction than that of my previous mortgage broker at my "Looking to refinance" email. Left to him, we'd have sealed the deal that very day. He was hungry for my business; the global pause had brought about a great financial shock, it really seemed to be a buyer's market.

There were a few glitches, however, and where there are glitches, there is toli...

A Live Human

The first issue we encounted was when the mortgage company wanted to verify employment.

I asked my manager and he pointed me to GM's official process for employment and wage verification. As a large company, it employed a vendor to automate this process. I went along and set things up at the vendor, The Work Number, and provided it to the mortgage company.

I got the following response from the broker. Apparently, enough of the 40+ million newly-unemployed Americans had applied for mortgages just after being laid off, that all mortgage underwriting companies were tightening requirements. They were now requiring to speak to a live human to verify things.

"Unfortunately, we can't use automated verifications. The system is not current... meaning up to day to day. So the HR person will just need to verify that you are an active employee 2 days before closing. Again, it's a Covid guideline so we have to make sure you haven't been laid off."
In other words, mortgage fraud was rampant. Mortgage servicers weren't trusting any of the automated systems that were in place. A live human was needed for verification.

This was also one of my first encounter with that felicitous phrase, covid guideline. A phrase that quickly become a catch-all and authoritative, even when said guideline was sometimes questionable. Middle management and frontline staff alike could just allude to a covid guideline and all manner of nuisant rules would manifest themselves.

(Covid Guideline also sounds like the name of an indie band.)

I didn't want to put my supervisor or assigned HR partner on the spot by giving out their contact details to verify employment. That would be wrong and I didn't want to go against The Company's process.

But I was in a bind if all mortgage companies were now wanting to contact a live body in light of the pandemic. I wondered if I should try to find a different mortgage company, if one existed, that would proceed with the automated process. From what I understood however, all other underwriters were in the same boat. I briefly considered feigning cold feet with my broker just to see him sweat a little (so keen was he for my business).

The news reports indicated that this was a widespread issue

WSJ Says Banks Can’t Determine Who Is Credit-Worthy: More COVID-19 Fallout
‘Flying Blind Into a Credit Storm’: Widespread Deferrals Mean Banks Can’t Tell Who’s Creditworthy

Millions of Americans are out of work and behind on their debts. But, in many cases, the missed payments aren’t reflected in their credit scores, nor are they uniformly recorded on borrowers’ credit reports.

The confusion stems from a provision in the government’s coronavirus stimulus package. The law says lenders that allow borrowers to defer their debt payments can’t report these payments as late to credit-reporting companies.

Lenders that are having a tough time spotting risky loan applicants are approving fewer borrowers for credit cards, auto loans and other consumer debt. They are also hunting for new data sets that could indicate who is in financial trouble and how much they need to set aside to cover soured loans. The Federal Reserve last week said the biggest U.S. banks could be saddled with as much as $700 billion in loan losses in a prolonged downturn.

“Without accurate information, their only option is to pull back on credit,” said Michael Abbott, head of banking for North America at consulting firm Accenture PLC. “Banks don’t know who is going to pay and who isn’t. It’s like flying blind into a credit storm.”

Banks started tightening their underwriting standards in March, when the first wave of coronavirus layoffs began.
A year later in 2021, this low trust environment still persisted
Lenders are calling employers to confirm that the homebuyer will have permission to work remotely when the pandemic ends. Rates are lower for loans on primary residences, and the lender also wants to make sure the borrower actually plans to work after getting the loan.
Luckily for me, after some back and forth between the broker and my employer's human resource department, things worked themselves out. I was able to be verified. Our HR department found itself staffing up virtual call centers to do the work that they had previously paid good money for an automated solution from an external vendor. Live humans were indeed needed.


Our closing ceremony was quite eventful as I've previously recounted. Interestingly, a curious document manifested itself during that process - a "Covid-19 attestation" that the notary insisted that we sign. The financial situation of millions was in upheaval; the breakdown in trust across society was complete, and mortgage companies sought to protect themselves by adding whatever they could to the closing process even if of dubious legal standing.
Covid-19 attestation

I affirmed that the income documentation (my last paystubs) I had provided was unaffected by "the COVID-19 resulting economic impact, and I am not aware of any future changes in my employment status and/or income that will affect my ability to repay my loan".

As I signed, I questioned how the mortgage company ever hoped to enforce that attestation and what value it would have if indeed my income did change dramatically. Perhaps someone can enlighten me. What actual use is that Covid-19 attestation in legal terms? Force majeure is what it is, attestation notwithstanding.

From what I understood, the majority of fraud in the US during the covid years concerned repayment of covid relief PPP loans. I was a little surprised that even garden variety real estate mortgages were similarly precarious.

I believe things are stabilized four years on, and that there has been a return to the normalcy. The credit environment and the mechanics of the mortgage process have adjusted. Higher interest rates will cool excess exuberance, I suppose. Colleagues that refinanced last year inform me that our company's automated employment verification solution was accepted. The Covid-19 attestation endures however...


The New Process

Speak to a live human
And sign the attestation
So go the covid guidelines

Attestation, a playlist

A soundtrack for this note (spotify version) ...

(I'm revisiting some of the notes I jotted down in the first years of this ongoing pandemic, do let me know if you find them useful)

This note is part of a series: In a covidious time.

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Writing log: June 21, 2020. January 13, 2024

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