California Hard Money Lending & The Impact of Dodd-Frank

Chris - what do you mean by hard money?

I've watched lending over the past 31 years I've been a Realtor. . .It is an ever-changing landscape!

I think folks had good intentions, but I am not so sure that the folks who are making these rules actually understand how the real estate market/loans work. 

Great subject Chris. Correct me if I'm wrong, but this will also greatly impact seller carrybacks (aka seller financing) and the multiple variations of it.

It will have an impact on every kind of lending but hard money lending may get hit pretty hard as it is now pretty much unregulated, is it not? While Dodd-Frank may have been orginally designed to help and with good intentions I think in the end it will simply be handing more pwer and control to the kings in Washington.

In our Colorado Commission Update Course, here is what we were told:

1. HUD rules state that sellers:
1. Selling their personal residence or second home, may offer seller financing to residential home buyers up to three (3) times in any given year.
2. Selling property to someone who intends to use the property as a rental are exempt, and investors selling non-residential property with seller financing are also exempt.
2. The Dodd Frank Act definition of mortgage originator exempts an individual (or an estate or trust) that provides mortgage financing for no more than 3 properties in any 12 month period from the requirements of Title XIV, but only if the financing meets certain rules:
1. The seller did not construct the home
2. The loan is fully amortizing (no balloon mortgages allowed).
3. The seller determines in good faith and documents that the buyer has a reasonable ability to repay the loan.
4. The loan has a fixed rate or is adjustable after 5 or more years, subject 10 reasonable annual and lifetime caps.
5. The loan meets other criteria set by the Federal Reserve Board.
6. Title XIV of Dodd Frank Act will not take effect until 2013.

While no one wants a borrower to be preyed upon, I don't think centralized federal government command and control works.  One smart guy in D.C. can't make rules and know what's best for all of us dummies.  Let the consumer decide if it's predatory or not, and not some PhD bureaucrat in DC.

Chris, this is another case where the government is going over board in trying to protect the public. It will end up costing the consumer more in the long run.

Dodd-Frank:  Case study in Washington overfixing a problem it failed to see coming. 

Let's not kid ourselves.  Those who bear the majority of the brunt of this unwieldy piece of misguided legislation will be ethical professionals and well-intentioned consumers.  The loan officers I knew who made the sketchy loans are long out of the business.  So they're no longer regulated by Dodd-Frank --- or anything else, for that matter.

But my A+ paper clients --- pretty much the only ones who qualify for loans these days --- they're scratching they're heads as they go through the process. 

"Hell is the impossibilty of reason."  ~Oliver Stone

I'm in agreement with Rob on this one.  The legislators failed to address the root cause of the meltdown which lies at the feet of the investors who turned a blind eye to the garbage loans they were encouraging the lending community to make, then turned to the taxpayers for help when their behavior brought the economy to its knees.  I really wish there was an "experience requirement" in place before a legislator was authorized to write legislation regulating a business it knows relatively little about...

Excellent information I will forward it if that is ok? thank you!!!

Very interesting post, questions and answers.  I find it incredible that the rules are still being written and implemented.  Dodd-Frank seems to be taking on a life of it's own.

It looks like this bill will negatively impact individual sellers who are willing to do OMC (owner may carry) financing. I think it will put the squelch on many transactions in which OMC financing could be a factor.