D3TV – Update on Seller Financing

This video contains some new information about seller financing.  It includes some background on how often seller financing is being used and new information about how HUD is trying to limit it.

As I mentioned in the video, I want to provide some more information about the SAFE act and how HUD interprets this regarding seller financing.  You can read HUD’s complete interpretation here.

HUD is taking comment on their interpretation of the SAFE act through February 16, 2010.  Please tell them that they need to exclude all seller financing from the regulation!  Click here to submit a comment

What Should You Say in Your Comment
Say what you feel, but say it politely!   The message should include that you would like the definitions in the proposed rules to be changed so that private individuals can originate and service loans on properties they personally own.  Some ideas from others:

• bank loans are not available on some types of properties
• the tight lending climate has made bank financing “out of reach” for many
• seller financing is an “age old” tradition based on private property rights
• these rules would prohibit even partial seller financing – i.e. a “seller second”
• according to HUD’s “Residential Finance Survey” in 2001, roughly 40% of all non-farm residential properties in the US are owned free and clear
• an estimated 6 million Americans own a property other than their own primary residence
• an estimated 4.5% of Americans own three or more properties, many purchased solely as investment properties
• 40% of non-owner occupied residences are mobile homes which are more difficult to sell with bank financing
• approximately 5% of homes in US are for sale or for lease… seller financing may be key to liquidating this inventory

Here is some background:

 

 The Housing and Economic Recovery Act of 2008 (Pub. L. 110–289, approved July 30, 2008) (HERA) constitutes a major new housing law that is designed to assist with the recovery and the revitalization of America’s residential housing market—from modernization of the Federal Housing Administration, to foreclosure prevention, to enhancing consumer protections. The SAFE Act is a key component of HERA designed to improve accountability on the part of loan originators, combat fraud, and enhance consumer protections.

HUD has stated that they read the SAFE act as having a broad requirement for licensing ‘loan originators’.  They perceive that a large number of folks will need to be licensed – basically, if they deal with a loan ‘application’, they need to be licensed.  In their PDF file, on page 5, they do include the following exclusion:

The SAFE Act encourages States to establish minimum standards for the licensing and registration of State licensed mortgage loan originators and encourages the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) to establish and maintain the NMLSR for the residential mortgage industry for the purpose of achieving the following objectives:…

To me, this means that you will need to have a loan originator’s license if you offer seller financing on anything other than an owner occupied residence.  You will need a license for vacation homes, vacant land, inherited property (unless you move in), rentals (from single families to fourplexes), etc.

The commercial context implied by the taking of an ‘‘application’’ is also absent where an individual seller provides financing to a buyer pursuant to the sale of the seller’s own residence. The frequency with which a particular seller provides financing is so limited that HUD’s view is that Congress did not intend to require such sellers to obtain loan originator licenses. Accordingly, this rule would provide in § 3400.103(e)(5) that such individuals are not subject to State licensing requirements.

Please add a comment now!

Thanks to the folks at MetroREIT who brought this to my attention.