Only a few days remain to post your comment on the proposed rule changes that could be the death knell for seller financing. You can post your here http://1.usa.gov/pF9Fv0. The comments I submitted can be found below:
The SAFE ACT intended to protect consumers from big businesses and I applaud these efforts whenever they accomplish what they set out to do. My concern is when unintended consequences arise and citizens, American property owners as well as future American property owners, can actually be harmed. I am requesting that private individuals be exempted from the proposed rules changes and submit the following comment.
1. The seller did not construct the home to which the financing is being applied.
2. The loan is fully amortizing (no balloon mortgages allowed).
3. The seller determines in good faith and documents the buyer has a reasonable ability to repay the loan.
4. The loan has a fixed rate or is adjustable after 5 or more years, subject to reasonable annual and lifetime caps.
5. The loan meets other criteria set by the Federal Reserve Board.
Under this Act the only buyers who will be able to use seller financing are the buyers who can already qualify for conventional financing with perhaps the exception of how much of a down payment they need.
Seller financing has always been the alternative to government regulated financing. It is a meeting of the minds between two private individuals who negotiate an arm’s length contract to purchase property using an installment sale.
Seller “financing” provides housing for millions who otherwise could not qualify for conventional loans. It additionally, provides an outlet for properties that do not qualify for conventional or even GSE programs such as older manufactured homes that provide entry level and retirement housing for many Americans.
Homeowners are neither bank officers nor mortgage lenders. By requiring them (many if not most of whom who take back a mortgage are older Americans) 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. This will have a near term negative impact on the current economy by reducing the number of sales which pay transfer taxes to our state and county governments and long reaching effects in terms of preserving property rights as well as one’s ability to freely buy and sell property. Even the Wall Street Reform Act saw fit to allow up to 3 seller-financed transactions per year without MLO requirements.Why should a 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. It also deprives American’s, both buyers and sellers, to use their free will to honestly come to a meeting of the minds and transact the purchase or sale of a property in a manner beneficial to the principals (not a 3rd party lender who may have no vested interest).
This also opens the door to an additional risk; 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. 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. This will jeopardize the ability of many deserving people who may never qualify under bank standards (Federally mandated or not) to ever own their piece of the American dream because no one would accept that risk.
By not allowing a property owner to negotiate a balloon payment, there is a good chance that a seller 55 years or older will die before receiving all their equity. Many 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 that 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 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. 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.I have heard the suggestion 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. As I am sure you can see, the unintended consequences of these proposed rule changes, if accepted “as-is” without exempting individuals will negatively impact millions of American families.
This could be financially devastating to the seller. Let’s not forget that today’s buyer will be tomorrow’s seller. These sellers are a diverse group. They come from all walks of life: low income, high income, non-English speaking, seniors, widows, minorities, but this requirement places the same standards on individuals as banks and mortgage lenders, only with more risk – the banker is in the business of mortgage loan origination and factors that risk into his business plan, whereas the individual seller does not have capital reserves and doesn’t do this as a business. Also, unlike a bank, they do not carry errors and omission insurance.
My mother is 80 years old and owns two properties; a condominium and a co-op. Neither of these will qualify for bank financing in the current market. At some point she may need to sell and convert these properties into an income stream to provide for her long-term care unless she can find a cash buyer. A cash buyer will likely force her to accept a substantially lower price because she’ll have no other option available to her and she’ll be at risk that for up to 3 years, that a case of buyer’s remorse could reverse her sale. Is that in her best interest? Additionally, as her and many other seniors in a similar situation exhaust their reduced assets, the government will be forced to pick up the tab for her care, further exacerbating the federal debt or reducing the quality of life for America’s elderly.On behalf of my family and families across America I am asking that you clearly distinguish between banks who are lenders who actually lend money and property owners who are principals in negotiating an installment sale in order to collect their equity in the sale of a home. In a seller financed transaction both parties are consumers neither of whom need be disadvantaged by these proposed rules.
Please feel free to contact me directly at Augie@PACTProsperity.com
Your decisions will impact millions of American families. Thank you for your consideration.
Hi Augie. This is an excellent letter with many great points. You certainly worded it significantly better than I ever would have. My fear is that this and many likes these will simply not be read.
You wrote “The SAFE ACT intended to protect consumers from big businesses. My concern is when unintended consequences arise and citizens, American property owners as well as future American property owners, can actually be harmed.” My challenge is that I am not sure what is driving this change; is it REALLY to protect the consumers or is it big banks protecting their interests?
Maybe mom and pop are inadvertently being included but my gut tells me in the background, other interests are driving the change.
BTW, I do love the provision of properly qualifying the borrower. That removes the stupidity and irresponsibility of stated income loans. Really disagree with the 3 years and being paid back. That will never happen but if there are penalties for stupid loans, there should also be huge penalties for the buyer who fails to disclose.
I will post my comments today.
Gerald Demers
The Federal Reserve is made up of the heads of the biggest banks. This is more more step for them to have a monopology and total control over American citizens’ finances. They are already getting rich off the backs of the people they were given billions to help without helping a fraction of them, getting richer and richer all the way. When will it stop!?! They are the only ones laughing all the way to the bank.
Thank you all for your comments, please forward or tweet this information to everyone you know that either owns property or might someday like to own it. My concern is that is that when ordinary people can no longer negotiate and sell or purchase a property without government intervention, the banking industry will become the GREAT AMERICAN LANDLORD. Our children and theirs will become perpetual tenants. I’m not even sure how this can be constitutional since the area of real estate oversight has always been the purview of each State, and not the Federal Govenrment. Additionally, these proposed ruls are not being made with congressional oversight but rather by an unelected appointee. That smacks of something other than democracy or republicanism.
This is little time so please continue to spread the word.
to your success
Augie
PS Here’s the short link to send http://bit.ly/qO8XDX
I agree with Bonnie’s assessment of the real reason for passage of this law. As a matter for further speculation I would also submit that the actual people who wrote the terms of this law were probably attorneys from the major banking institutions.
While that may be an accurate assessment, it could also be that the authors were unfamiliar with the potential impact of not mixing ordinary citizens with big corporations. I spoke with a number of congressmen, senators, and aides when the original Dodd-Frank bill was being proposed. I was amazed at the lack of understanding many of these people had of what actually goes on in the real world’s of their constituents. Many were sympathetic once they understood and the final result was a significantly lesser impact.
Either way, we need the support of everyone possible to let their feelings be know that “as-is” these proposed rules regarding ability-to-pay for seller financed installment sales will be bad for Americans and by implication bad for America.
To your success…
Augie
I’m really glad that i was be able to read such a big help article.Many thanks for sharing this info with us.Keep it up!!
I’m very thankful for the info you gave here.
Will visit your post often.
It is a hard time for selling houses. Now I prefer renting them. For me it’s ok… I am having another business for a living. good that all my properties are my own… so I don’t have to worry about debt collector
While you seem happy with your current lot in life and I applaud you, American property rights are in danger. If the houses around you were burning and yours was not, would you remain inside yours (util yours caught fire) or go out an help your neighbors and in doing so protect yourself?
I agree with you 100% Augie. The banking business, I feel, is trying to create a monopoly on the lending process. If owners can’t hold some paper many deals would never go through. The buyer can always refinance a balloon before its end date making sure there is no prepayment penalty clause in the note. It can be a win-win situation for both without any government intervention.
Well put Patricia. The other important aspect of retaining freedom in seller financing is that if a seller was to be limited to cash buyers only, that would strip the competitiveness-factor out of many deals leaving seller at the mercy of cash buyers (especially in “must sell” situations). This would also effectively reduce values further as comps would fall because lower “cash” prices would be offered.
To your success…
Augie