In the future, getting a mortgage will be simpler, cheaper, and faster than it is today. Borrowers will have fewer hoops to jump through, and fewer layers of intermediaries with which to deal.
Ironically, the process will bear a much closer resemblance to what our parents experienced getting their first mortgage than what we encountered getting our last.
Forty years ago, when our parents walked into their local S&L or bank and requested a loan, a banker probably visited the property and made an on-the-spot decision on its value.
Since the banker and the loan committee intimately knew their market and their customers, the loan was approved within a few days and a closing date set for shortly thereafter.
The process was simple, quick, with very little paperwork, and of course, cheap. But progress changed all that.
By the mid- 1980s, the need to efficiently move funds across the country had created a national mortgage market.
While this had an extremely beneficial impact on homeownership, the trade-off was the demand for the standardization of the mortgage package.
The end result was a file filled with an application, verifications of all kinds, credit reports, release forms, approvals, etc., all of which complicated the mortgage process.
Today, the paperwork for a plain-vanilla, $100,000 home loan is probably thicker than the file for a $50 million warehouse line to the originator that makes the loan.
By the late 1980s, the cost to produce a loan was approaching $3,000. This high cost created an opportunity for middlemen to extract profits.
This pricing umbrella permitted the explosive growth of intermediaries, such as brokers and mortgage bankers, as well as the conduits that relied on those intermediaries as origination sources.
The increase in market share of those intermediaries was a direct result of their ability more efficiently to deliver product to either the borrower or the end investor.
This development was aided by the lack of technological progress in the mortgage arena, which was operating in the 1960s or 1970s from a technological perspective.
The implementation of both technological innovation and process reengineering is already leading to dramatic reductions in the costs of origination, as well as dramatic improvements in service. This is good news for borrowers, but bad news for intermediaries.
Intermediaries will be squeezed out from under the pricing umbrella, as centralized processing, telemarketing innovations, and credit scoring drive marginal costs of production to well under $1,000 a loan.
While costs have fallen, technology has also allowed us to achieve dramatic improvements in customer service.
As costs continue to fall and service levels rise, the role and market share of mortgage intermediaries will be dramatically and quickly reduced.
The surviving players will be those originators that have successfully demonstrated the ability to deliver directly. to the consumer a higher-service, lowercost mortgage product.
These companies will be characterized by their direct marketing capabilities and their skill and determination in process reegineering.
They will underwrite using artificial intelligence; rely on appraisal management to reduce costs and improve quality and speed; and regain control over the closing process.
Along the way, investors, rating agencies, and Fannie and Freddie will come to understand that technology will, in fact, enhance the consistency and quality of our product just as it has done in so many other industries.
So it's back to the future. Consumers will once again get their mortgage from a direct marketer in a simple, quick, painless, and cheap manner.
And the mortgage industry will experience a dramatic consolidation as intermediaries disappear.