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

[Kyle Grimm]

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]

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...