A new law exempts up to 3 seller-financed transactions in a 12-month period from mortgage originator licensing requirements. Bill HR 1473, now known as the Dodd-Frank Wall Street Reform and Consumer Protections Act, was signed into Public Law No: 111-203 on July 21, 2010.
A loud outcry was heard across the nation from real estate owners, investors, and note buyers on any restrictions that would limit sellers from using owner financing on property they owned.
It seems the lawmakers have listened… well, sort of.
The changes probably fall into the category of “something is better than nothing.” You can read the new language below and be the judge.
Excerpt pertaining to exemptions from Mortgage Originator definitions in:
HR 4173 Dodd-Frank Wall Street Reform Act
TITLE XIV–MORTGAGE REFORM AND ANTI-PREDATORY LENDING
Subtitle A–Residential Mortgage Loan Origination Standards, SEC. 1401. (2)(E)
(E) does not include, with respect to a residential mortgage loan, a person, estate, or trust that provides mortgage financing for the sale of 3 properties in any 12-month period to purchasers of such properties, each of which is owned by such person, estate, or trust and serves as security for the loan, provided that such loan–
(i) is not made by a person, estate, or trust that has constructed, or acted as a contractor for the construction of, a residence on the property in the ordinary course of business of such person, estate, or trust;
(ii) is fully amortizing;
(iii) is with respect to a sale for which the seller determines in good faith and documents that the buyer has a reasonable ability to repay the loan;
(iv) has a fixed rate or an adjustable rate that is adjustable after 5 or more years, subject to reasonable annual and lifetime limitations on interest rate increases; and
(v) meets any other criteria the Board may prescribe;
To Read the Full Bill visit: http://www.govtrack.us/congress/billtext.xpd?bill=h111-4173
So is it an improvement?
Yes, since the previously proposed language had only exempted 1 seller carry-back transaction every 3 years. This makes the exemption for 3 in 1 year slightly more palatable.
You’ll also notice it requires the real estate note to be fully amortizing (no balloons), fixed rate for first 5 years, and the buyer showing an “ability to repay.” It does not require the seller to have lived in the property as his own residence.
If a seller financed transaction falls outside the set parameters then it has to meet the mortgage loan origination licensing requirements. That means getting a license or using a licensed mortgage originator to handle for a fee.
This also appears to be good news for loosening restrictions placed by the HUD Safe Act. As the law is implemented it should revise the minimum standards set for states under the Nationwide Mortgage Licensing System Registry. Certain states, such as Texas, are already incorporating seller-financing exemptions into their laws.
It’s hard to declare a victory for any law that chips away at our private property rights. However, the changes are welcomed. Or as one investor said, “Weekly beatings are better than daily beatings…”