What will the mortgage industry look like in 5 years?

When I’m asked how long I’ve worked in the mortgage industry I respond that I’ve had a front-row seat to the most interesting decade the mortgage industry has ever seen.  Today, regulators proposed a new slate of rules that could potentially have a MAJOR impact on the mortgage industry landscape.

The provision that is likely to get the most attention is the one that would require all lenders to keep 5% of all “non-qualifying” mortgages on their balance sheet so that they participate in the risk of default & foreclosure.  This particular rule is in response to the sub-prime era when lenders would make risky loans then sell the entire mortgage off by securitizing it.  The problem was that they didn’t take great care in originating the mortgage because their financial incentive ended at the point that the loan was originated and sold off to investors.

What remains to be seen is how they will define “lender”.  Here at Mortgage Trust we are a small boutique mortgage lender that utilizes a credit facility to make our loans which we in turn sell to larger financial institutions such as Wells Fargo, US Bank, Suntrust Bank, and many more.  If companies like the one I work for would be subject to this rule we wouldn’t be able to offer “non-qualifying mortgages” because we don’t have the capital to do so.  Therefore, the origination of non-qualifying mortgages would be left to the larger financial institutions.  The problem with that is that greater concentration leads to higher costs and poorer service for consumers.

Do you have an opinion about these rules?  Please leave a comment below.