Slide the Paperwork Under the Door: Mortgage Boom Is Upended

(Bloomberg) -- It has all the trappings of a routine mortgage refinance closing. The mortgage broker, the lawyer and the homeowner, all signing off on the paperwork that will cut the interest rate on a single-family home in suburban Fairfield, Connecticut.

But as agreed, the broker and lawyer will stay in the garage. And the papers will be passed one by one, through a crack in the door, so their client can sign them and reduce the risk of face-to-face contact.

It’s just one example of the practical challenges facing the U.S. housing market as the coronavirus spreads. While mortgage rates are near historic lows and much of the application process can be done online, the closing itself still usually requires the lender and borrower to meet in person. Now, that quintessential rite of passage could become even more time-consuming. More broadly, the health concerns at the root of the outbreak could dim one of the few bright spots in the U.S. economy that’s otherwise shutting down.

Mortgage refi demand remains high, but “it’s the ability to close these applications where we are seeing delays due to courthouses shutting down -- which impedes your ability to clear title -- and the reluctance of appraisers, notaries and homeowners to meet face-to-face,” said Eric Schuppenhauer, president of consumer lending at Citizens Bank in Providence, Rhode Island.

The same can be said for home sales, where social distancing can make inviting strangers for an open house might seem downright irresponsible.

In the San Francisco-Bay Area, one of the hottest housing markets in the U.S. in recent years, residents have already been ordered to shelter-in-place. New York City Mayor Bill de Blasio is also mulling the idea of confining residents to their homes, while millions across the U.S. have started to practice social distancing as a means to reduce the risk of infection and transmission.

Morgan Stanley predicts the U.S. housing market will likely face severe disruptions from the coronavirus, as demand slips and measures to combat the pandemic stall the processes.

Social distancing will hurt not only home sales, but also “appraisals, title searches, employment verification, and closing/notarizations,” analysts led by Jay Bacow wrote in a report. “We expect a severe impact in the plumbing of the housing market at least for now.”

©2020 Bloomberg L.P.