Seller Financed Being Regulated? Stop HR 4173
February 8, 2010 by admin · 4 Comments
Urgent Update: House Passes Wall Street Reform Act HR 4173 Including Mortgage Reform Provisions of HR 1728 Regulating Owner Financing
The proposed legislation that had real estate sellers and buyers legitimately concerned about seller financing passed the house on December 11, 2009, as part of HR 4173. Also known as The Wall Street Reform and Consumer Protection Act, the bill now goes to be voted on in the Senate.
The original text of HR 4173 was a staggering 1279 pages and intended to provide wide sweeping reform to insurance, derivatives, and the financial services industry. It has now grown to include multiple amendments and the mortgage reform that would impact owner financing.
Before consideration of the Wall Street Act began on the house floor, the House Rules Committee included Title VII, another 200 pages known as the Mortgage Reform and Anti-Predatory Lending Act. This legislation was originally passed as part of HR 1728 on May 7, 2009 (see How Congress Wants to Change Seller Financing). It had fortunately stalled in the Senate but is alive once again with its inclusion in the Wall Street Reform Act HR 4173.
Why the Concern?
The Mortgage Reform Act sets forth strict regulations on mortgage originators. It effectively takes away the rights of private property owners by bringing them under the regulation meant to apply to Wall Street and Big Banks.
Most of us would agree there is need for reform after the bailout of AIG, Citigroup, and other entities the government considered “too big to fail.” However, the inclusion of seller financing is going to hurt the very people it is trying to protect – the average person on main street trying to buy and sell property with some kind of alternative to failing bank loans.
The Mortgage Reform Act applies to mortgage originators and defines mortgage originators. It also provides exclusions for when the law would not apply. The portion that has owner financing worried is the following section 101(3)(e):
(E) does not include, with respect to a residential mortgage loan, a person, estate, or trust that provides mortgage financing for the sale of 1 property in any 36-month period, provided that such loan-
(i) is fully amortizing;
(ii) is with respect to a sale for which the seller determines in good faith and documents that the buyer has a reasonable ability to repay the loan;
(iii) has a fixed rate or an adjustable rate that is adjustable after 5 or more years, subject to reasonable annual and lifetime limitations on interest rate increases; and
(iv) meets any other criteria the Federal banking agencies may prescribe;
Basically the law would apply to someone selling a home and offering a seller carry-back installment sale, except in the above instance and provided the loan meets those 4 requirements. (Anyone else concerned about how vague that last one is…(iv) meets any other criteria the Federal banking agencies may prescribe…?)
So if you want to sell more than one property with seller financing every 3 years the law applies. That means the licensing, testing, bonding, net worth, and reporting required of mortgage originators. This will limit how many buyers are able to fulfill their dream of home ownership. Buyers often turn to seller financing when banks decline a home loan.
So what can we do? Write your Senator to voice your opinion. Explain how seller financing will hurt the little guy and encourage them to Vote NO on HR 4173. Remember, this is the same Mortgage Reform language that was included in HR 1728, so keep making your voice heard.
Looking for more information on the proposed legislation? Here are some additional resources:
CLICK HERE – To read a summary of the bill related to mortgage reform as published by the Law Firm of Pepper Hamilton Financial Services.
See Below…For a sample letter to use in communicating with your State Senator encouraging him or her to VOTE NO on HR 4173 and HR 1728.
CLICK HERE – To read the section of the bill related to Mortgage Reform (formerly HR 1728 and now included as Title VII of HR 4173 Wall Street Reform and Consumer Protection Act of 2009)
CLICK HERE – To track the progress and read the full text of HR 4173 (over 1,279 pages plus numerous amendments).
SAMPLE LETTER:
Sample Letter – Please Vote No on HR 1728
Dear Senator [name];
My name is ____________ and I have been a resident of Texas since 1993.
I am writing to encourage you to vote NO on HR 1728, the “Mortgage Reform and Anti-Predatory Lending Act”.
While many of the provisions of the act are positive steps toward mortgage reform, the inclusion of private property owners in the Act (see section 101(3)(e)) will enormously reduce the housing choices of Washingtonians and the ability of homeowners to sell properties in a market already languishing from an abundance of unsold properties.
As someone in the real estate industry, I encounter hundreds of instances every year where home sellers and buyers came to an agreement for an installment sale on a property that the owner desperately needed to sell (often to avoid foreclosure) and the buyer desperately wanted to buy, but could not raise the down payment needed for conventional financing.
In every situation, these sales were win-win deals for the buyer and seller: The seller was able to get rid of an unwanted property to a buyer who loved it, and the buyer was able to get a new home at an affordable payment and interest rate with none of the usual costs (points, application fees etc) inherent in conventional mortgage transactions.
In Texas, these transactions are already regulated by state law. A low maximum interest rate is already in place, and both the buyer and seller are protected by other regulations at the state level.
In defense of private property rights, owners should be exempted from the burdensome and unnecessary rules that this law foists upon them. In its current form, it would all but shut off the “owner financing” market, which is often the only option for many sellers to sell and buyers to buy right now.
PLEASE DO NOT LET THIS RESTRICTION ON PRIVATE PROPERTY RIGHTS PASS THE SENATE. It is unnecessary to stop private buyers and sellers from transacting business that is beneficial to both of them – -they do not cause the problems this bill seeks to solve. They do not originate these notes to sell to government-sponsored entities (Fannie Mae, Freddie Mac, FHA, etc.), but instead hold them as investments, often as a source of long-term income. HR 1728 would be extremely harmful to thousands of your constituents if passed as currently worded.
This legislation will exacerbate the problem OF foreclosure, as fewer sellers will be able to sell their homes to avoid it, and CAUSED BY foreclosure, as fewer buyers who have recently experienced foreclosure will be able to re-start the process of home ownership inexpensively and easily by negotiating owner financing.
Thank you for your consideration.
Respectfully,
[Name and Contact Information]
What about writing the Texas Legislature?
We missed getting involved at the state level, all worried about Congress.
81(R) HB 10 – Enrolled version – Bill Text
Texas Secure and Fair Enforcement for Mortgage Licensing Act of 2009
We can no longer negotiate seller financing in Texas, since last year, without using or obtaining a Mtg license.
One exemption for owner occupied property every 36 months, ugh.
Please get the word out on this. Use an attorney, or a licensed Mtg broker to negotiate any seller financing.