As the mortgage madness continues and sub primes fall deeper and deeper into the abyss, we’re entering a whole new world of home loan lending.  In many ways this is probably a good thing, or at least it’s a trip back to sanity.  But what does the future have in store for mortgages?

I think we can reasonably expect to see plenty of tightening in the mortgage market.  Here are some of the areas to expect change:

• Back to the Basics – The end of creative financing will probably be right around the corner.  In other words, the 30 year fixed will remain the standby.  Borrowers will be as reluctant to take interest only and dramatic ARMs as lenders will be to give them.
• Modest Interest Rates – Gone are the days of trying to score a 5% rate.  Qualified borrowers will likely end up happy to be paying in the 8% range for a 30 year fixed.  Of course, this is nothing near as bad as the 15% days, but not as cheap as it’s been over the last few years either.
• More Government Programs – As we go through the impending crisis, the government will add more subsidized and government-backed lending programs to the current plethora of FHA, VA, etc. loans.  While the government isn’t likely to actually solve any problems, expect plenty of grandstanding on the issue just because it’s a hot topic during a big political season.
• Manual Underwriting – As credit scores prove to be less than perfect credit worthiness determining factors, expect to see the FICO score based approval give way to the more traditional manual underwriting loan process.  Real people will make honest assessments based on both accurate data and common sense.
• More Money Down – 20% or even 30% could be the magic number when it comes to down payments, at least when it comes to securing a competitive interest rate.  Why so much?  Well, as bubble markets are proving, the value of a home isn’t a guaranteed thing.  Lenders will owe it to themselves and their shareholders to properly secure their holdings.

What does this all equate to for the consumer?  Well, it might just mean qualifying for a more realistic purchase instead of living like a prince on a pauper’s income.  It might mean going through the loan approval process is not a surefire easy thing like it’s been lately.  For some, it might mean renting is the only affordable option available until a hefty down payment can be saved.

This might sound like the old days of mortgage lending all over again, but I’m predicting the industry will seek refuge in the tried and true.  They’ll stick to what they know has worked well in the past instead of trying to push the limits in a turbulent time.  And the mortgage madness will slowly fade away to a distant memory.