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Old 07-17-2011, 08:17 PM
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Post RED ALERT: Dodd/Frank Bill (act before July 22, 2011)

Note to readers: I received this today via email. Below is the copy/paste of the email. Thanx, Debbie

Dodd-Frank Bill Red Alert


I do not send out EXTRAS to the Note Professor Newsletter, because I think once a month is usually enough time to discuss current events. However, because of the time limit, I am making an exception. The Dodd-Frank Bill, which would in effect outlaw seller financing is now in the stage of receiving comments from the public.

WE HAVE UNTIL JULY 22 TO ACT.

In a nutshell, the Dodd-Frank Bill would virtually outlaw seller financing. The Federal Reserve, which received sweeping new authority under the Obama regulatory reauthorization, wants to effectively eliminate seller-held (a.k.a. purchase money) mortgages. It will do this by enacting a rule for the Dodd-Frank Act prohibiting property sellers from taking back a mortgage unless the buyer essentially can qualify for conventional financing!

What's more, Ma and Pa Homeowner, who create 95% of seller-held mortgages, won't be able to qualify buyers under the same underwriting standards that banks are required to perform, and therefore the cash flow notes won't be created.

If this is enacted it also will remove access to housing for millions of Americans, because seller "financing" is the only way people who can't qualify for conventional loans can buy a house.

Moreover, it would allow a buyer a three year right of rescission (they can cancel the sale) if the seller did not properly qualify them. The right of rescission also applies to anyone who buys the note. ACT NOW

I suggest that not only YOU leave YOUR comments, but also those of you have sold property using seller financing, contact your buyers and have them send in their comments explaining they would never have been able to afford or purchase a home without seller financing.

PLEASE BE PROFESSIONAL and RESPECTFUL when leaving comments.

Here are other suggested talking points.

Seller "financing" provides housing for millions who otherwise could not qualify for conventional loans.

Homeowners are not bank officers or mortgage lenders. By requiring them (many if not most of whom who take back a mortgage are elderly) to qualify buyers using bank standards means they will simply refuse to sell with owner financing. Thus millions of people will be deprived of home ownership.

Why should the buyer be required to divulge their income and assets to the very person with whom they are negotiating the terms of a sale? This is not required when there is a 3rd party lender.

Requiring the buyer to turn over all their financial information to a stranger opens the door for identification theft and fraud.

This also creates the opportunity for predatory borrowing. This is where an unscrupulous buyer knowledgeable about the Dodd-Frank Act leads an uninformed seller (and this will be the majority of sellers) into negotiations not in compliance with the ability-to-repay requirements. (An example of that could be a balloon, an interest rate greater than 1.49% above a standard mortgage, or the seller did not know how to calculate the income-to-debt ratio correctly, or know what residual income means). That buyer lives in the property trying to resell it for a profit and if they are not successful within three years they rescind the sale and get all their money back.

By not allowing them to negotiate a balloon payment, there is a good chance that a seller 55 years or older will die before receiving all their equity. A lot of seniors have invested in real property with the intent of selling it using seller financing (an installment sale) in order to supplement their income in retirement, but also with the hope that they would not be stuck with a 30 year investment. The Dodd-Frank Act does the same thing insurance companies do who sell 30 year annuities to seniors. Our government has criticized this deplorable practice because seniors will die before they receive all their investment.

The restriction of no balloon doesn't affect just seniors, it has financial consequences for anyone using seller financing. Under the Dodd-Frank Act community banks are allowed to originate fully amortizing loans with a five year balloon. The rationale is that they hold these loans in their own portfolios and the government recognizes their need to hedge against inflation and rising interest rates. Yet, the Act does not recognize that private property owners who have 100% skin in the game need the same protection. A five year balloon is predatory lending. If there has to be a restriction it should at the very least be the same allowance given to community banks of a balloon in 5 years.

There are a lot of small builders that have a spec house or two that they can't sell unless they offer great terms using seller financing. Otherwise they have to let these properties go back to the bank, which does not help housing or the economy.

It has been said that 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. If a mortgage loan originator (MLO) fails to properly follow the ability-to-repay guidelines the buyer still has three years in which to rescind the sale which leaves the seller at risk and will most likely bankrupt them.

My favorite response is with the passage of the SAFE ACT, the consumer is protected from abusive lending practices, which makes the Dodd-Frank bill unneccessary. There are also conflicts between the Dodd-Frank bill and the SAFE ACT.

YOU MUST ACT NOW

Please forward this email to others. The clock is ticking.




Tom Henderson
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Old 07-27-2011, 01:56 PM
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Default UPDATE from Tom (July 27, 2011)

Thank all of you who responded to my alert. There seems to be some confusion as to where to go to submit your comments, as well as what the Dodd- Frank Bill says or when it will go into effect.

To begin, Dodd -Frank has already been passed, but before it can be implemented, the proper regulatory agency will receive comments before making the regulations final. You will remember the SAFE ACT went through a similar process, and because of all the last minute comments, seller financing was not "killed" in the HUD regulatory process. Hopefully, the will same hold true here.

Secondly, while the Dodd-Frank Bill does allow for three or less property sales before being required to become a Mortgage Lender Originator, seller financing stills appears to fall under the criteria of conventional loans, such as the property seller having to determine credit scores, "acceptable" loan ratios, employment etc. While we can maybe live with having a property seller be restricted to only three per year, making sellers comply with rigorous underwriting criteria is not desirable to say the least. Especially when it will be Mom and Pop sellers, not experienced investors who will get caught in the trap. Asking the Federal Reserve to exempt seller financing from the regulatory process when 3 or less properties are sold in a 12 month period might be the best we can hope for.

To make your comments, ACT NOW . This should send you straight to the comment section. Hope this helps. We shall see.




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