Will Dodd-Frank effect me if I want to sell 3 homes OwnerFinance?

Question

As stated in my subject line, I have three single family homes I would like to sell with owner financing over say a 5-10 year period. Does anyone know how the new Dodd-Frank lending laws will effect me?

Charlie Fitzgerald · Answer

As with all the regulations, it's all in the interpretations. Mine is thus...in a nutshell, the only way for a seller to offer seller financing without having to be concerned with licensing, is to have a NMLS registered and State Mortgage Originator Licensee handle the transaction. IF the seller is going to handle the transaction, then they are subject to the same rules, regulations and licensing that is required. This would include the requirement to either service the loan themselves, or place the loan that they make with a sub-servicer. Dodd-Frank set in motion the requirement for "every lender" to insure that mortgage transaction was properly serviced . The matter of how many "sales" a seller may undertake and still not be required to be licensed as an originator is not defined by federal (CFPB) regulations. The only terms used are "habitual and repeatedly". Both can be have the meaning of "more than once". So the issue of licensing is a separate issue from servicing when it comes to seller financed mortgages. Servicing is a component of every mortgage transaction that must be performed. Licensing is a component that may be required of a seller, if the regulatory body in their state deems them to be "habitually" providing seller financed mortgages.Here is some comments on the topics put out by NAR...their conclusions and opinions are just that...their conclusions and opinions.SAFE Act Final Rule: Seller Financing and REOs The SAFE Act requires licensing of loan originators under state laws that meet minimum federal requirements. HUD has established minimum standards in its final rule published in the Federal Register on June 30, 2011. HUD's overall responsibility for interpretation, implementation, and compliance transferred to the Consumer Financial Protection Bureau (CFPB) on July 21, 2011. Who must be licensed as a loan originator?The SAFE Act requires licensing of individuals who engage in the business of a loan originator. To trigger the licensing requirements under the SAFE Act, the financing must be primarily for personal, family, or household use. An individual engages in the business of a loan originator if the individual, in a commercial context and habitually or repeatedly, takes a residential mortgage loan application and offers or negotiates terms of a residential mortgage loan for compensation or gain. How often does a seller have to provide seller financing to be subject to licensing?HUD chose not to decide how frequently an individual may provide financing before reaching the requisite degree of habitualness. NAR expects CFPB to defer to reasonable state laws on the number of seller financing transactions that would trigger licensing, but only time will tell. <-- Note from Charlie: Even this would not eliminate the responsibility to ensure that the loan made via seller financing is/was properly serviced. How can sellers financing the sale of their properties be sure to avoid licensing?A seller financing the sale of his or her own property would completely avoid the issue of licensing by retaining the services of a licensed loan originator. Hope this helps...

Jay Hinrichs · Answer

@Kyle Grimm check with your state division of mortgage lending.many states have exemptions for 1 or 2 transactions a year etc.in our state you can do 2 a year and no more than 3 held at anyone time.those doing above that they deem in the business and needing licensure.

Charlie Fitzgerald · Answer

LOL..probably a good idea.

Jay Hinrichs · Answer

@Charlie Fitzgerald in practice though its the states regulators that hammer one LOL I know I have had it happened to me... to get the feds on you would have to be big time issues. far more than mom and pop in my mind. I know one thing I would never do anything in your great state without proper licenseing

Charlie Fitzgerald · Answer

@Jay Hinrichs I hear you...the problem with the NAR suggestion that a seller simply find a RMLO to facilitate the transaction is that the licensing authorities could then move against the seller for brokering without a license, and also move against the RMLO and their company for accepting TPO (third party originations) from a non-licensed person. So, there in lied the slippery slope! As you and I know from our decades in this industry, it is not uncommon to be in non-compliance with one regulator body, while being in complete compliance with another.

Jay Hinrichs · Answer

@Charlie Fitzgerald thank you .... our state division of finance and corp securities put out a bulletin clarifying what you could do in Orygun and that was deemed 2 a year no more than 3 in possession.Finding a RMLO that will do your paper work is not very easy... As I found out trying to find one in Vegas I could not find one.. and even got turned into the department of finance in NV and got a nasty gram from them... LOL. Seems like there would be a niche for some RMLO to make a practice of facilitating seller carry backs..

Charlie Fitzgerald · Answer

Hi @Kyle Grimm,My pleasure Sir. I hope a lot more folks do look into it further as well...it's a slippery slope, this compliance mountain, and most folks are not as in the clear on this (and other areas) as they believe they are. The entire industry has changed significantly in the last 7-8 years and keeping up with it all is a daunting and necessary element of our business these days.

Kyle Grimm · Answer

@Charlie Fitzgerald Thanks so much for the information and the article. I definitely need to look into this further.

Jay Hinrichs · Answer

@Charlie Fitzgerald the servicer requirements are for owner occ correct ? not commercial purpose or investor loans.. and is it state specific?

Charlie Fitzgerald · Answer

You also want to make certain that you comply with the mandatory servicer regulations for lenders...which you will be deemed to be if you offer seller financing...