How COVID-19 Is Changing Borrower Behavior and Lending Risks

The COVID-19 pandemic has radically reshaped the mortgage borrower journey, from origination through servicing, creating an array of new operational risks for lenders and servicers. As consumers move quickly to a fully digital borrowing experience, organizations have faced a flurry of new compliance challenges, from confirming borrowers’ identities and employment to ensuring fees are allocated accurately and disclosed on time.

“Between credit risk, operational risk and compliance risk, there are lots of changes,” said Teresa Blake, a principal with KPMG’s Financial Services Practice, who has spent the last five years helping lenders modernize and simplify the lending process. “It’s placing more pressure on the lender to get it right the first time.” Blake spoke at a February 9 webinar sponsored by SitusAMC and ComplianceEase. Click here to access the full recording of the webinar.

Fraud on the Rise

While compliance has always been a top concern for lenders, fraud and cybersecurity risks are what keeps them awake at night, Blake said. A data breach gives hackers access to sensitive borrower information that can be used to orchestrate wire theft.

“In this economic environment fraud and operational risks greater than ever,” Blake said. “There have been a lot of issues where someone is claiming to be employed when they are not.” One scam involved a borrower setting up a “ghost company” to imitate a real employer and supplying fake documents, including pay stubs, she noted.

“There’s always something new,” Blake said. “It used to be just (email) phishing … now there are 50 other ways they are tracking to crack open and get into the loan transaction.”

Process and Communication Challenges

As lenders conduct more eClosings and hybrid eClosings than ever, they must continually rebuild and refine processes and control structures to ensure compliance. “Whether in origin or servicing, the online process can move quickly,” Blake said. “Lenders must focus on how to help associates engage with borrowers and make sure communications are compliant, fast and accurate. Something as simple as sending the wrong eNote to the wrong person can happen. Getting it right is critical.”

Another challenge for lenders has been how lenders interact with borrowers virtually, which is a different dynamic than face-to-face experience, Blake said. A borrower may not see the passion a loan officer has for helping them because “it doesn’t come across the same way online.”

Because they are placing more trust in technology, borrowers need to feel in control of the process—which means lenders need to have command over their processes first. Requiring borrowers to bring more money to the closing table, for example, is the worst thing lenders can do. “Communication in a virtual environment is the most critical thing,” Blake said. “You need to keep connected with the borrower and make sure they understand what is needed from them.”

Meanwhile, shifting borrower behaviors have also pushed lenders to adopt new processes such as drive-by appraisals, which Blake expects to become more mainstream. “If I’m a borrower, I’m not necessarily sure I want an appraiser in my house right now,” she said. “I’m okay with a drive-by or even a real estate agent coming by, but I’m not sure I want someone in my house for two hours. I think this is a perfect opportunity to change and continue to advance more streamlined appraisal products.”

Managing Remote Teams  

While the pandemic has accelerated the adoption of digital technology, overworked staffs have become another risk that lenders must manage. With the boom in both home purchases and refinancing, Blake said many employees are working around the clock on loan transactions from home, which has been particularly hard for those with kids.

“Once kids get back to school, I think things will change and improve,” she said. “But right now, you have parents who have been working in this environment for 10 months, and they are as taxed as they’ve ever been.”

The pandemic is exacerbating technology implementation, as many workers are installing systems and tools they haven’t used before. Adoption is especially hard when managers cannot sit next to an employee and train them in person. “It’s a lot harder to get it installed and working right,” Blake said. “You have to do it virtually and trust that they understand and asked all the right questions so they can use those tools. It’s not as easy as you think. Even with and components that are not new, it still takes a herculean effort to make sure they are used and used well.”

A Shifting Regulatory Landscape

With a new administration in place, it’s likely that the Consumer Finance Protection Bureau (CFPB) is going to refocus its attention on fair lending rules—which means potentially more audits for lenders. Blake said she’s already seen alarming growth in borrower issues, noting that the CFPB’s complaint database is “on fire.”

But there’s still time to get in front of regulators and take preventive steps to ensure any audits go smoothly, Blake noted. Blake called every complaint “a gift” that gives lenders an opportunity to understand what went wrong and take corrective action.

Blake recommends lenders and servicers analyze the CFPB’s data to identify and understand trends. For example, if a lender has a high number of complaints involving loan origination and they are all related to fees, the lender can deploy technology to provide more accurate cost estimates to borrowers. “There are tremendous opportunities for lenders to enhance people, processes and technologies across the compliance spectrum.”

To access the full recording of the webinar, click here. To learn more about ComplianceEase and SitusAMC’s suite of compliance solutions, contact us at

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