HUD is poised to take away our rights to offer owner or seller financing on property we own. Under the Safe Mortgage Act proposal, you can only offer owner financing on the home you live in or you must become a licensed mortgage originator.
Here’s how I see it. If we own a property, ANY property (whether it is our residence or not), we should be able to sell to a buyer with owner financing.
HUD’s proposal is to provide an exemption to “where an individual seller provides financing to a buyer pursuant to the sale of the seller’s own residence” (Item F Page 66551 of the HUD Summary Comments).
Unfortunately, this exemption does not go far enough. What if you bought the property lived in it and then moved? What if it is now a rental property, inherited, or simply bought for investment purposes?
At a minimum the exemption should be extended to include any transaction where the seller provides financing to a buyer pursuant to the sale of property the seller owns (regardless of whether it is the seller’s residence).
The HUD proposals under the Safe Act are all part of the fall out from the failed lending institutions and related to HR 1728 and HR 4173.
It makes me wonder…
If the property owner must become a licensed loan originator to offer a seller carry back, will we now be eligible for the TARP bailout should the mortgage fail? (Just couldn’t resist that comment.)
So what can we do?
The first step is to make your voice heard at www.regulations.gov.
Here are some helpful steps that were outlined in a memo from the National Real Estate Investors Association entitled “HUD Issues Problematic Rules Interpreting SAFE Mortgage Licensing Act”:
1. Log on to www.regulations.gov. You will see two white boxes for searching
2. On the left box labeled “Document Type”, pull the menu down and select “proposed rules”
3. On the right box labeled “Enter keyword or ID”, enter “safe mortgage”. Then, press search
4. Locate the blue search result “FR-5271-P-01 Safe Mortgage Licensing Act: HUD Responsibilities Under ….” To read the rules, click on this title. You will be taken to another page. You will see “views”. You can click on PDF file or another symbol, which will show you the rule document online.
5. On the right of the screen, click on “submit comment”
6. Complete the form providing required information and your comments and then submit
What do you say?
Say what you feel, but say it politely! The message should include that you would like the definitions in the proposed rules to be changed so that private individuals can originate and service loans on properties they personally own. Some ideas from others:
- bank loans are not available on some types of properties
- the tight lending climate has made bank financing “out of reach” for many
- seller financing is an “age old” tradition based on private property rights
- these rules would prohibit even partial seller financing – i.e. a “seller second”
- according to HUD’s “Residential Finance Survey” in 2001, roughly 40% of all non-farm residential properties in the US are owned free and clear
- an estimated 6 million Americans own a property other than their own primary residence
- an estimated 4.5% of Americans own three or more properties, many purchased solely as investment properties
- 40% of non-owner occupied residences are mobile homes which are more difficult to sell with bank financing
- approximately 5% of homes in US are for sale or for lease… seller financing may be key to liquidating this inventory.
The continued success of our industry as we know it is threatened by these proposed regulatory changes. Please do not hesitate to follow the steps above and make your voice heard.
Long-time seller financing professional Ric Thom of Security Escrow shared this helpful comment:
“Seller financing is an installment sale. The exemption should apply to any property that an individual owns, i.e. second home, rental house, vacant land, not just a person’s individual residence.
Not everyone owns stock. People have invested in real estate with the intent of reselling using owner financing to supplement their retirement income with this cash flow. Thousands of people have property in their IRAs for this very purpose. To require this class of private property owners, who offer their own property and negotiate the terms of an installment sale to become a mortgage loan originator, is onerous.
This exemption should be broadened beyond just a seller’s residence.”
Comments are due at www.regulations.gov by 2/16/2010 so we urge you to take action now.
Important Update: The time for comments on the HUD Safe Act has been extended to 3/5/10.