I watch with amusement the new lenders entering the market as the old reliables vanish. Every few weeks, another new mortgage banker steps forward and says that they can lend to those with sub-580 credit scores, or that they can do “liar” loans - stated income or no income documentation.

A few weeks later, that new mortgage banker sends out an announcement that they’re no longer taking new files.

Any efforts to recreate the E-Z credit atmosphere of the past is doomed to fail. There just are no investors willing to take the risk. For the next several years, if not decade or more, loans will be made to those who can prove their income and credit quality.

Incoming regulations to ensure against identity theft, to use only third party automated documentation of income and bank deposits, and further restrictions on access to consumer credit will soon produce a totally new way of taking a loan application - you’ll swipe your driver license.

The revisions to the Patriot Act plus other legislation mandate standardized state driver license record keeping and forms, and over the next few years, your driver license will be replaced with one that’s just a little chunkier - it will contain an RFID chip - meaning that someone with an RFID reader could examine your name, address, driver license records, etc. It also means that your driver license will carry access to all kinds of secure databases. IRS records. Credit bureau records. Criminal background history. Voting records. Bank records. State unemployment/income records (which are updated weekly or quarterly and provide instant access to exactly how much you do earn).

Taking out a mortgage will instantly become instantaneous, as all of these databases populate into mortgage software, drive through the FNMA/Freddie Mac automated underwriting system and “presto!” You’re nearly done.

This is going to make the private mortgage broker about as modern as the dodo bird. The analogy there is quite apt, only those that move quickly and strongly toward adopting these expensive technological changes will be able to compete with the new Super Banks - Chase, Wells, BofA. The private mortgage broker will only be able to work on self-employed persons and credit tiers that are beneath FNMA/FHA/VA standards - and then only with a handful of mortgage banks.

Choices will be extremely limited, and consumers shopping around will find it much harder to compare.

If you’re in the mortgage business now, and you’re committed to staying in the mortgage business, I suggest you start setting aside capital to secure access to this developing technology and data subscriptions, or start planning your early retirement.

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