Residential mortgage lending is changing dramatically, affecting borrowers and lenders in ways that aren’t yet identified. The Law of Unintended Consequences will get a lot of scrutiny in the next couple of years.

First, it’s harder to qualify for a mortgage. By way of comparison, income, documentation and down payment guidelines are about where they were in the mid to late ’70s. Fewer borrowers will be able to qualify, which will have some effect on home sales as the country emerges from recession.

It’s more expensive for banks to make home loans. The Dodd-Frank Act, which reorganizes the nation’s banking and financial infrastructure, runs 2,300 pages. Yet most of its mandates are to be carried out by regulations written by the various federal regulators. Analysts say that the 2,300 pages of law could result in 23,000 pages of regulations. The new Consumer Protection Agency will have enormous power, and nobody knows how that power will be used. All of this is making bankers very nervous. And you know who is most affected by a banker’s angst: that’s right, borrowers.

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Mortgage brokers and independent mortgage bankers may be going the way of buggy whip designers. Because of the new laws and regulations, it’s harder for a broker to originate a loan, and it’s going to be a lot less lucrative.

Come April 2011, a nice little emolument called a Yield Spread Premium is mandated to disappear. It’s the manifestation of a simple concept: the originator of a loan gets paid more if a higher interest loan is delivered to a secondary market loan purchaser. For example, currently, say the going mortgage rate is 4.5 percent. However, should the loan producer manage to close a loan at, say, 4.875, to pass along to the money center conduit, then that originator could make as much as an additional 1 percent fee on that loan; $4,000 on a $400,000 loan. Add this to the Servicing Released Premium (which means that the producer gets paid for releasing the servicing rights to the loan) about 1.70 percent in this example, and the originator made something like $10,800 on the deal. Pretty sweet, huh? Of course, the individual loan person doesn’t get to keep all of this loot. Some goes to the house. But there’s a big enough pie for everybody involved to do quite well. Now you see how some fast talking, hardworking, and competent loan sales people became multi-millionaires, virtually overnight, during the first decade of this century. Too bad a lot of them, in turn, got 100 percent loans to invest in real estate.

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Whether they like it or not, banks and credit unions will likely be the residential mortgage originators going forward. The loan officers will be bank employees, who will be motivated to look after the interests of the bank and, hopefully, the borrowers as well, since the latter will be customers.

Just so you all know how tough it is for an ex-banker today, I’d like to relate a little story.

The other day, I was standing at my accustomed place at the intersection of Highways 82 and 133 with my carefully hand lettered sign: WILL CONSULT FOR FOOD.

A well-dressed lady in a Mercedes pulled up to the light and asked, “What brought you to this sorry state, my good man”?

“Well, er, ma’am, I was a banker.”

“That’s disgusting!”

“Yes, ma’am. Do you suppose you could spare a dollar?”

“Absolutely not,” she said as she drove away, “You’d just spend it on drink!”

Now, I wonder how she knew that?

Pat Dalrymple is a valley native. He’s been in the mortgage and banking business since 1961. He’ll be happy to answer your questions or hear your comments. His e-mail is dalrymple@sopris.net.