Do I need a mortgage loan originator?

Question

Jim Johnson · Answer

Ben,

This is a quote from

https://barneswalker.com/seller-financing-restrictions-under-the-dodd-frank-act/

A lease option contract where an owner rents out residential property to a tenant and gives the tenant an option to purchase the property after a specified period may also be subject to the new Dodd-Frank Act, if any of the rental payments are used as a credit toward the purchase price or create ownership equity in the property.

As you describe your 'rent to own' it would fall under this rule.

If you use part of the payment for the purchase of the home, or extend credit for such purpose you fall under Dodd Frank.

So- my best guess answer to your question is if you are doing rent to own, you need the licence.

If you lease option where the payments or part of the payments go to the purchase of the house, you also need a licence.

If you lease option, where there is a fair market value payoff at the end of the term, and you are not going to carry paper you do not need a licence.

Also- if you are selling the home on a purchase contract (could be rent to own or a lease option depending on how it is written), you might (probably) fall under the rules of replevin (repossession) and not eviction.

Jay Hinrichs · Answer

Great Post, !!   the NMLS test is VERY hard to pass unless you have been writing owner occ mortgages for years and fully understand all the alphabet agencies out there..  In Oregon we need one even to do HML  on one to four units..  I passed the first time but by the skin of my teeth compared to real estate brokers tests that I can basically finish in 45 minutes .. some of the mods think I gave up.. but nope done ..

I am inactive at this time but I keep my CE up so if I want to buy a mortgage company and start up I don't have to take the darn test again.  and I took the uts portion that was easy 25 questions . and that is an important little thing to have as well.

the website were you do your mortgage call reports for me being old school is uber hard to use.. I always have to call the help line and have them walk me through it.. there is a reason once the NMLS system came in that huge numbers of originators left or went to work were they did not need NMLS>

so yes the license Is NOT easy to get .. and you have to be a mortgage banker like me to write your own deals. IE loan your own money.. and that takes experience and state qualifications.

I do like CA though I can lend HM there with my  CA brokers license..

Jim Johnson · Answer

Branden, If you do a lease option, and it is two separate deals your not extending credit.

First, they lease the home from you- then they purchase it for cash- your not extending payments. The cash value must be 'significant'. So it can not be for like $100. If you have a payoff or sale at the end that is not significant then, you have in fact extended credit.

Jay Hinrichs · Answer

yes irs will look at zero interest financing and charge imputed interest.. I came up with a zero interest owner carry program in 82ish when interest rates were sky high.. I believe it was Datsun or Nissan ( aging myself here) that first came out with zero interest car loans.

I had some Saudi clients at the time who could not pay interest for religious reasons and since we were selling land that we owned we could create our own seller carry backs.. I simply put terms into my PV calculations.   I wanted a note that would equal 15% return if I was so sell the note on the open market to cash out..  turns our 30 months zero interest does it.. buyer was happy.. I could turn around and discount and sell the paper for the same amount as if I wrote a 7 year 15% note.. and I have used this arrow in my quiver ever since usually to sell my duds  LOL  but you do have to deal with IRS as stated.. there is no question zero interest financing is  an extension of credit.

Joffrey Long · Answer

Ben,

I missed one point:

All of my comments are based on Federal Law, which you are of course subject to.  Jacob made a good comment, "the state matters."    He is correct, there may be, in addition to what I said, state requirements you need to meet.

Just want to also clarify that regardless of the State, you still are subject to what I listed earlier.

Again, an investment in qualified legal counsel is your next step.

Joffrey

Joffrey Long · Answer

Ben,

I believe that there are two questions you have to answer, and then I'm going to respectfully disagree with one of the other suggestions you were given:

First, (and I believe Jim identified this issue) is your transaction a true lease option or is it a deferral of part of the purchase price, including payment of a finance charge? (a loan)  What you described sounds like the latter.   (making it subject to TILA and NMLS reqs)

Second, are you a "creditor" under TILA ?(Truth in Lending Act)  I would think you are, the correct answer to the first point leads to the creditor definition.

A "creditor" under TILA is an entity or person who extends consumer credit with a finance charge more than once in a 12 month period, which you likely do.

I will disagree that "licensing is easy to get," as the NMLS test is hard to pass AND even if you do, your entity must now begin quarterly and annual reporting to the NMLS System.

Also, under Dodd Frank, if the above apply, you are probably required to document the borrower's ability to repay, and service the credit agreements/loans under the strict Dodd Frank loan servicing rules.

In Dodd Frank, they anticipated that some might carry paper to get around Dodd Frank (not that you are doing this) and therefore they also "cast their net" over seller carry backs.

Most importantly, please don't rely on what I say, except to inspire you to seek legal advice (which I am not qualified to give) from a qualified attorney in this area, and structure this so it doesn't get you into legal tangles or possibly worse, interaction with the CFPB. (no fun)

I do testify in court as a mortgage lending expert witness, so I am at least qualified to say that when borrowers can't make payments, they often sue or otherwise challenge the legality of your loan origination.

Hope this is helpful.   (although not fun reading)  I do like your business model.

Joffrey Long

www.MortgageExpertWitness.net

Jay Hinrichs · Answer

I don't believe that is correct.. your extending credit credit can be interest free.. I do seller carry bank interest free loans a few times a year selling my duds.. its great paper.. and great for the buyer..   One thing you should check into is many states have a carve out.  plus if you don't charge interest IRS will hit U with imputed interest .. so you will pay tax on some of the income like it was interest income.

IE you can do 3 and year and no more than 7 in your portfolio at anytime.. this is to allow mom and pop IRA investors to loan their own money I know this exists in Oregon..

but if your in the business that's different. so if you have bought a park with 40 park owned and 10 rentals and you want to move those park owned to the tenants.. then yes your probably in the business.

Eddie Speed has been working on a national committee to try to address seller carry back for US investors I don't know if he is making any head way.

The way I have handled this in my parks is to simply give them the coach and raise the rent..

Braden Coleman · Answer

@Joffrey Long yeah that makes sense, great info. So in theory, if you're just spreading out the sale of the home over payments, and not charging them an interest rate(i.e. 10%) then you'd be okay and not be violating the Dodd-Frank act?

Who would you recommend I chat with? I'm right at that phase.

Do I need a mortgage loan originator?

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