Converting a CFD to Traditional Note / Mortgage

[Chris Seveney]

Ok note fans- here is one for you that I am curious to hear the response as I have received conflicting information from two MLO’s who many of us know and/or use:

Converting a CFD originated pre-Dodd Frank to a traditional note and mortgage and giving the borrower the deed to the property.

Do they need to be requalified and go through ability to repay if payment is not increasing?

I have been told yes and no.

[Wayne Snell]

We have done a handful of these. In fact we’re doing one right now and are not going through a full re-qualification because the borrower has been in the property and performing for 5 years. Our attorney said that we needed to get title insurance but we expect that. The key is the borrower understands that they will now own the house and is responsible any/all liens, having real homeowners insurance and that their loan will be escrowed for taxes, etc. 

I will say that we always use an MLO for seller finance sales we originate. We also make sure to remain under the annual limit. I’m told that the Seller Finance Coalition is currently working with Congress to get the limit  increased so keep your fingers crossed and if you can volunteer or provide any financial support for that initiative I highly recommend doing so.