When the Dodd-Frank Wall Street Reform and Protection Act was passed, it made sweeping changes to the lending, credit card, and mortgage industry. One of the provisions is that a seller could not do more than 3 seller financing deals in a year without needing a mortgage loan originator license. The law also has provisions that such seller financing provisions must meet certain other criteria.
Here is a direct link to the Fed proposed rule available for your comments: *** Fed's propsal - make comments here. ***
Below is some exact language regarding this provision. (If you want to read the whole passage on this law, you can follow the link above and click on the "enrolled version" under #6 and go to the very bottom of the page under Title XIV Subtitle A- Residential Mortgage Loan Origination Standards.)
SEC. 1401. DEFINITIONS.
Section 103 of the Truth in Lending Act (15 U.S.C. 1602) is amended by adding at the end the following new subsection: (cc) Definitions Relating to Mortgage Origination and Residential Mortgage Loans-
... (2) MORTGAGE ORIGINATOR- The term "mortgage originator"-
(A) means any person who, for direct or indirect compensation or gain, or in the expectation of direct or indirect compensation or gain--
(i) takes a residential mortgage loan application;
(ii) assists a consumer in obtaining or applying to obtain a residential mortgage loan; or
(iii) offers or negotiates terms of a residential mortgage loan;
... (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;
Well now the Fed is making their interpretations of this law. They are seriously considering making homeowner's and small investors fully qualify buyers using conventional underwriting standards, 20% down payments, and no ballons (fully amortizing) in order to receive seller financing. This will in effect kill nearly all seller financing. And Washington wonders why the economy will not recover from this recession/depression???
Thanks to Papersource Online for highlighting this new rule and getting the word out. Papersource goes into great detail of important items you can mention in your letters to Washington.
Below is some of the actual language in the Fed rule:
The revisions to the regulation, which implements the Truth in Lending Act (TILA), are being made pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act. The proposal would apply to all consumer mortgages (except home equity lines of credit, timeshare plans, reverse mortgages, or temporary loans).
Consistent with the act, the proposal would provide four options for complying with the ability-to-repay requirement.
- First, a creditor can meet the general ability-to-repay standard by considering and verifying specified underwriting factors, such as the consumer's income or assets.
- Second, a creditor can make a "qualified mortgage," which provides the creditor with special protection from liability provided the loan does not have certain features, such as negative amortization; the fees are within specified limits; and the creditor underwrites the mortgage payment using the maximum interest rate in the first five years. The Board is soliciting comment on two alternative approaches for defining a "qualified mortgage."
- Third, a creditor operating predominantly in rural or underserved areas can make a balloon-payment qualified mortgage. This option is meant to preserve access to credit for consumers located in rural or underserved areas where banks originate balloon loans to hedge against interest rate risk for loans held in portfolio.
- Finally, a creditor can refinance a "non-standard mortgage" with risky features into a more stable "standard mortgage" with a lower monthly payment. This option is meant to preserve access to streamlined refinancings.
They are taking comments up until a deadline of Friday, July 22, 2011.
Please spread the word, make your comments on their website, and notify your Congressman and 2 Senators of this anti-business, anti-real estate rule.