Buying a home is never easy, but widespread stay-at-home orders and social distancing regulations in communities across the country have made it even harder. The mortgage industry has long relied on in-person interactions to help buyers work their way through mountains of paperwork and a checklist of legal requirements. With shutdowns still underway, that's become impossible.
This has forced a dramatic shift toward digital transactions in order to meet the needs of lenders, buyers, and sellers who, for now, are unable to close a deal in person.
States Title, a title and settlement provider that aims to digitize the entire process of closing a real estate deal, is one such company that has been pushing the industry toward digital transactions for a while. It secured a $123 million Series C funding round in May.
"The broader trend in the real estate and mortgage world, up until three or so months ago, was the gradual recognition that core processes were vastly outdated and needed to change," said Max Simkoff, CEO and founder of States Title. "When coronavirus hit, almost without exception, anyone of any scale in this industry completely trashed their pre-existing plans, which were more gradual, more careful, and said we need to do a lot of stuff literally overnight."
Founded in 2016, the San Francisco-based firm started off as a digital provider of title insurance, which serves a crucial role in any mortgage transaction.
"If you're a large title company, you're in the business of issuing title insurance, but really a lot of the work you're doing is closing the mortgage itself," Simkoff said. "The lender or the realtor relies on you to do everything from coordinate the closing dates to printing the loan documents to quoting and getting all the fees right to paying out all of the disbursements."
In the past, title companies sent out representatives from regional offices to handle this work.
Title insurance ensures that the buyers or lenders are not liable for any defects in the title, such as back taxes, an outstanding lawsuit, or a contested ownership claim. The process traditionally takes several days, because the provider must first do a deep background search on the property, but Simkoff said his company automates research and makes it almost instantaneous.
"We were the ones trying to convince everyone for the last couple of years that there was no need to have in-person signings or run title searches that take several days," he said.
States Title has since moved into providing a full platform for digital mortgage deals.
Other aspects of the mortgage industry have gone online as well, usually when a major player steps up with a new digital offering.
Simkoff points to Quicken Loans' launch of Rocket Mortgage in 2016 as one watershed moment. The fully online mortgage lender uses an algorithm to provide instant pre-approval, rather than forcing borrowers to fax in a bunch of paperwork. Other lenders have followed suit.
In general, real estate has lagged behind other industries when it comes to digitization. It's long relied on in-person interactions to keep transactions running smoothly, or in some cases making sure all the legal requirements are met, including notarization, which requires a witness.
The coronavirus pandemic accelerated this transition almost overnight. From real estate agents providing virtual tours to lenders closing loans remotely, there is a new normal in the industry.
"The model of being able to reach out through an online service and complete a transaction conveniently from your home with only as much human interaction as is useful to you, that clearly has come to the fore," said Patrick Burns, CEO of Spruce, which develops software for mortgage and real estate companies that want to manage the title and closing process online.
"I think we're going to see that continue as things start to open up," he added. "I think they're going to open up slowly and in a way that will leave areas of the economy and real estate industry that do not return to normal. Consumers are going to need more flexibility."
Spruce has also come out of the shutdown with a fresh round of capital, picking up $29 million in Series B funding earlier this month. Burns said he predicts that coronavirus is likely to broaden the housing market, rather than diminish it.
"Coming out of the coronavirus, I think what consumers are going to face relative to 10 years ago is that there will be more options," he said.