Ric Thom, President of Security Escrow (www.securityescrow.com,
www.securtyescrownews.com) has just alerted me to the following.
We have a midnight (EDT) Tues., Oct. 16th deadline to act.
Seller financing is under attack again and your comments are needed
immediately.
In July 2011 the Federal Reserve asked for comments on Dodd-Frank
amending the Truth-in-Lending Act (TILA). At that time we were all
concerned they were going to require property owners who offered
seller financing to prove the buyer’s ability to repay.
Everyone rallied, sent comments and the Federal Reserve responded
favorably.
It worked with the Federal Reserve, but regulatory authority
over the TILA has been moved to the new Consumer Financial
Protection Bureau (CFPB), and it is proposing restrictions
on seller financing that few property owners will like.
We all need to write comments to the CFPB (see below for instructions
and comments posted by others to guide you in writing yours).
THE DEADLINE IS MIDNIGHT (EST) TUES., Oct. 16.
Explain to the CFPB why this proposed rule would basically destroy
seller financing which in turn takes away the opportunity for a segment
of the American people to purchase a home.
CFPB is proposing a rule that not only limits seller financing
transactions on dwellings to three per year, but the property
seller must also comply with the following restrictions:
– The seller has to verify and document the buyer’s
ability to repay the installment sale using the same criteria
mortgage loan originators (MLOs) and banks are required to use.
This is the same criteria that are required under the controversial
Qualified Mortgage definition. If the seller does not qualify the
buyer the fines are the same as they are for MLOS and banks.
– The buyer and seller are not allowed to negotiate a
balloon payment. The installment sale cannot negatively amortize,
nor can you have an interest-only installment sale.
– Furthermore, the installment sale has to have a fixed
interest rate for the first five years before the interest rate can
increase.
I have provided links to the proposed TILA rule and a link where
you can send your comments.
The Truth in Lending Act (Regulation Z); Loan Originator
Compensation 36(a)-1.v (seller financing) can be found at:
http://tinyurl.com/9d2xy6m
Comments must be received no later than midnight (EDT), Tues. October 16, 2012.
Forward this page to others who believe in private property rights.
Visit www.regulations.gov to submit your comments.
In the big “Search For” box, cut and paste this in:
Loan Originator Compensation 36(a)-1.v
and hit the Search button.
On the right you’ll see
“Comment Now!”
Comments Due
Oct 16, 2012 11:59 PM EDT
Paste your comment there.
The Truth in Lending Act (Regulation Z); Loan Originator
Compensation 36(a)-1.v (seller financing) can be found at:
http://tinyurl.com/9d2xy6m
Here are sample comments to use as your guide in writing to the
CFPB. Feel free to use as much of the language as you wish.
From Ric Thom, President of Security Escrow (www.securityescrow.com,
www.securtyescrownews.com)
Thank you for letting me comment on seller financing under the
proposed rule Loan Originator Compensation 36(a)-1.v. My name is
[[INSERT YOUR NAME AND BACKGROUND HERE]]
I have grave concerns about the proposed rule in Truth in Lending
Act (Regulation Z); Loan Originator Compensation 36(a)-1.v (seller
financing) and the unintended consequences that will affect a
segment of private property owners, and will slow the recovery of
the real estate market as a whole. I would like to give you some
statistics and observations that I and my employees have seen.
What is Seller Financing?
Seller financing is where the seller agrees to receive their equity
in their property from the buyer in an installment sale. Seller
financing is also known as owner financing, seller carryback,
installment sale and credit sale. There is no table funding. There
is no third party. No money is lent. No loan is originated. There
are no points or fees charged by the seller. The buyer and seller
negotiate the terms of the sale which include sales price, down
payment, monthly payment, interest rate and amortization. The
seller receives payments while the buyer gets all the benefits of a
property ownership.
Who Uses Seller Financing?
98% of property owners who offer seller financing are private
individuals who offer seller financing only once or twice in their
lifetime. The vast majority are forty years or older. Many of them
are elderly. They are not an industry or business. The buyers come
from all walks of life and one of the main reasons they request
seller financing is because they cannot meet the credit
requirements that the banks require. In seller financing the seller
is willing to take the risk and give an opportunity to the buyer.
Why Use Seller Financing?
The three most common reasons the owner of a property offer seller
financing is either for investment purposes or because their
property is non-conforming or a tight credit market. An example of
offering seller financing for investment purposes might be that
they have a rental house and have been approached by the renter to
sell it to them using seller financing. This is appealing to the
seller because they can make 5 or 6% interest on the installment
sale while receiving their equity over time without the
responsibility of ownership. It is appealing to the buyer because
they can usually get into the property with little down, no
qualifying and are building equity instead of renting. A
non-conforming property is one a bank will not provide a mortgage
loan for, like a 1986 mobile home permanently attached on an acre
of land. The only way the seller can sell the property is by
offering seller financing.
Three in One Rule Not Consistent with SAFE ACT or the intent of TILA
Some of the rules placed on seller financing are even more
stringent than those imposed upon mortgage loan originators (MLOS)
and community banks. Under the proposed rule a property owner who
uses seller financing three or less times in one year does not have
to become a MLO. However, loan officers at community banks do not
have to become a MLO unless they originate more than five
transactions in a 12 month period.
In HUD’s proposed SAFE Act rule seller financing was limited to a
seller’s personal residence. After 14 states exempted seller
financing from their state SAFE Acts and HUD received more than
4000 comments, HUD changed the rule to its present form. The SAFE
Act does not require an individual to become a MLO or place any
other restrictions on that seller financed transaction unless the
individual offers seller financing “repeatedly and habitually”.
The intent of TILA has always been to regulate businesses. Non
table funded transactions were exempted from Mortgage Loan
Originator rules. They were considered creditors. These creditors
were allowed five credit sales per year that included the buyer’s
dwelling. Now individuals, Grandma and Grandpa, are being regulated
under TILA if they do just one sale using seller financing. They
have to comply with some of the same rules that MLOs are held to.
The coauthor of the Dodd-Frank Act, Representative Barney Frank,
sent a letter to HUD on July 22, 2010 urging them to place the
maximum amount of seller transactions that an individual could do
before becoming a MLO, or having their restrictions on them, at
five in a 12 month period.
Additional Required Rules for Seller Financing: Ability to Repay;
No Balloon; Fixed Interest Rate
Ability to Repay: In the proposed rule if seller financing is used
the seller must determine in good faith and document that the buyer
has a reasonable ability to repay the credit transaction. They must
comply with the requirements of §1026.43. These are the same
requirements that banks and Mortgage Loan Originators must comply
with in order to meet the controversial Qualified Mortgage
definition. It is our belief that the average property owner
offering seller financing will not a) know what these requirements
are and b) will not know how to evaluate the criteria. They are not
going to know how to calculate debt to income ratio, residual
income, seasonal income, additional income, etc. Furthermore, can
the seller really rely on the buyer surrendering complete financial
information while they are negotiating the terms of the installment
sale? It also seems doubtful the buyer is going to want the seller
to be the custodian of this personal and confidential information.
The bottom line is if the buyer can qualify for a Qualified
Mortgage they wouldn’t be pursuing seller financing. Seller
financing does not create a financial systemic risk. The buyer
isn’t being sold a loan; the buyer is negotiating the terms of an
installment sale.
No Balloon: In TILA community banks are allowed to make loans that
have balloon payments. The rationale behind this is so they can
hedge their assets against rising interest rates and inflation.
Under the proposed rule an individual who uses seller financing is
not allowed to negotiate a balloon payment. They are denied the
same right a bank has. Anyone who is 55 years or older who cannot
use a balloon will probably die before they receive all their
equity from an installment sale. 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. An example of the use of a balloon in
seller financing would be a 70 year old retiree who sells their
rental house to the tenant who negotiates a balloon payment in 10
years in exchange for a lower interest rate. The retiree sold the
property using seller financing so she could continue getting cash
flow from the property without having to worry about doing repairs
to the property. The retiree wants the balloon so her heirs will
have cash when it is time to settle her estate. This gives the
buyer ample time to refinance or sell the property before the
balloon is due.
Fixed Rate: This restriction is reasonable, but it will eliminate
the ability for any buyer to wrap an existing obligation that has
an adjustable rate. Again, seller financing is not a loan that is
being sold to the buyer, but a negotiation of terms between buyer
and seller. For an adjustable rate to catch the buyer unaware is
highly unlikely. The buyer is the one who creates and agrees to the
terms.
This proposed rule won’t only negatively affect seniors,
minorities, and lower income individuals. These restrictions will
all but do away with seller financing which will have a negative
impact on housing, existing owners of private property, those
desiring to be property owners and the recovery of the real estate
market. It will drive seller financing underground. People will no
longer use realtors, title companies, escrow companies or record
transfer documents in order to avoid these onerous restrictions.
This is not predatory lending. The default rate we see is only
about 5%. These are not businesses like Pay Day Loans or High Cost
Finance Companies. There is no justification for this rule which
will have an economic impact on all those who are involved with or
rely on seller financing. The rule is neither necessary nor
justified by economic analysis of the use of seller financing.
States already have case law and statutes that regulate seller
financing. Seller financing has always been the alternative when
buying and selling property during financial crises. It was used in
the early ’80s when the mortgage interest rates were 20%, when the
RTC took over all the savings and loans during the early 90’s and
now due to tight credit. Just because you can’t meet bank lending
criteria doesn’t mean you shouldn’t be allowed to buy yourself and
your family a dwelling. We do not believe it was Congress’s intent
to kill seller financing and exclude hundreds of thousands of
families from home ownership, nor to leave hundreds of thousands of
people with no way to sell their non-conforming property. We
believe that will be the result if this proposed rule goes forward.
We request that you do not enact 36(a)-1.v.
I strongly encourage the CFPB to keep the current definition in
TILA of creditor and credit sale which allows 5 seller financed
transactions a year that involve a dwelling that are not table
funded with no additional restrictions.
INSERT YOUR NAME AND CONTACT INFORMATION
HOW TO SUBMIT YOUR COMMENTS:
Go to www.regulations.gov
In the big “Search For” box, cut and paste this in:
Loan Originator Compensation 36(a)-1.v
and hit the Search button.
On the right you’ll see
“Comment Now!”
Comments Due
Oct 16, 2012 11:59 PM EDT
Paste your comment there.
From Antoine Smith – President & C.E.O. of ResComm Investors, L.L.C. – www.rescomminvestors.com
TILA section 103(cc)(2)(E) provides that the term “mortgage originator,” should extend beyond reason and encroach upon “seller-financing” for residential single-family homeownership. It is my opinion that the CFPB is purposely seeking to eliminate access to adequate housing for any hardworking American that cannot qualify at the highest tiers of credit qualification for home ownership.
In and of itself, the proposed rule is no different than “Red-Lining.” Banks and mortgage originators have failed miserably through the CRA (Community Re-Investment Act) in its efforts to provide for housing to the lower stratas of credit-worthiness in the United States. Purposely targeting and excluding this population from homeownership is both immoral and opposite of the ideal of homeownership for the less fortunate citizens of the United States with less than stellar credit.
By enacting such restrictions, the CFPB is further punishing the American people for the lack of accountability that should have been in place in the credit markets before the crisis that we now find ourselves in as a nation.
Moreover, the proposed rule has no basis at all for its enactment. It lacks merit in any way as it relates to actually protecting the consumer.
At the end of the day, if this rule is enacted the proposed recipient of seller financing would in turn rent the property to a prospective tenant. This amounts to no more than adding a layer of credit commitment to the transaction.
The “solution” that seller financing provides is both necessary and an incentive for the recipient to improve their credit in order to qualify for traditional financing.
I beseech you in the name of justice and fairness that you not further damage the real estate markets by acting irresponsibly under a cloak of civil responsibility; that is in fact an egregious act of irresponsibility.
Kindest Regards,
Antoine Smith – President & C.E.O. of ResComm Investors, L.L.C. – www.rescomminvestors.com
HOW TO SUBMIT YOUR COMMENTS:
Go to www.regulations.gov
In the big “Search For” box, cut and paste this in:
Loan Originator Compensation 36(a)-1.v
and hit the Search button.
On the right you’ll see
“Comment Now!”
Comments Due
Oct 16, 2012 11:59 PM ET
Paste your comment there.
From Mel Gordon, Executive Director, Kios, LLC Note Division (www.KiosLLC.com)
Thank you for letting me comment on seller financing under the
proposed rule Loan Originator Compensation 36(a)-1.v. My name is
Mel Gordon, working to increase appropriate seller financing.
I have grave concerns about the proposed rule in Truth in Lending
Act (Regulation Z); Loan Originator Compensation 36(a)-1.v (seller
financing) and the unintended consequences that will affect a
segment of private property owners, and will slow the recovery of
the real estate market as a whole. I would like to give you some
statistics and observations that I and my employees have seen.
What is Seller Financing?
Seller financing is where the seller agrees to receive their equity
in their property from the buyer in an installment sale. Seller
financing is also known as owner financing, seller carryback,
installment sale and credit sale. There is no table funding. There
is no third party. No money is lent. No loan is originated. There
are no points or fees charged by the seller. The buyer and seller
negotiate the terms of the sale which include sales price, down
payment, monthly payment, interest rate and amortization. The
seller receives payments while the buyer gets all the benefits of a
property ownership.
Who Uses Seller Financing?
98% of property owners who offer seller financing are private
individuals who offer seller financing only once or twice in their
lifetime. The vast majority are forty years or older. Many of them
are elderly. They are not an industry or business. The buyers come
from all walks of life and one of the main reasons they request
seller financing is because they cannot meet the credit
requirements that the banks require. In seller financing the seller
is willing to take the risk and give an opportunity to the buyer.
Why Use Seller Financing?
The three most common reasons the owner of a property offer seller
financing is either for investment purposes or because their
property is non-conforming or a tight credit market. An example of
offering seller financing for investment purposes might be that
they have a rental house and have been approached by the renter to
sell it to them using seller financing. This is appealing to the
seller because they can make 5 or 6% interest on the installment
sale while receiving their equity over time without the
responsibility of ownership. It is appealing to the buyer because
they can usually get into the property with little down, no
qualifying and are building equity instead of renting. A
non-conforming property is one a bank will not provide a mortgage
loan for, like a 1986 mobile home permanently attached on an acre
of land. The only way the seller can sell the property is by
offering seller financing.
Three in One Rule Not Consistent with SAFE ACT or the intent of TILA
Some of the rules placed on seller financing are even more
stringent than those imposed upon mortgage loan originators (MLOS)
and community banks. Under the proposed rule a property owner who
uses seller financing three or less times in one year does not have
to become a MLO. However, loan officers at community banks do not
have to become a MLO unless they originate more than five
transactions in a 12 month period.
In HUD’s proposed SAFE Act rule seller financing was limited to a
seller’s personal residence. After 14 states exempted seller
financing from their state SAFE Acts and HUD received more than
4000 comments, HUD changed the rule to its present form. The SAFE
Act does not require an individual to become a MLO or place any
other restrictions on that seller financed transaction unless the
individual offers seller financing “repeatedly and habitually”.
The intent of TILA has always been to regulate businesses. Non
table funded transactions were exempted from Mortgage Loan
Originator rules. They were considered creditors. These creditors
were allowed five credit sales per year that included the buyer’s
dwelling. Now individuals, Grandma and Grandpa, are being regulated
under TILA if they do just one sale using seller financing. They
have to comply with some of the same rules that MLOs are held to.
The coauthor of the Dodd-Frank Act, Representative Barney Frank,
sent a letter to HUD on July 22, 2010 urging them to place the
maximum amount of seller transactions that an individual could do
before becoming a MLO, or having their restrictions on them, at
five in a 12 month period.
Additional Required Rules for Seller Financing: Ability to Repay;
No Balloon; Fixed Interest Rate
Ability to Repay: In the proposed rule if seller financing is used
the seller must determine in good faith and document that the buyer
has a reasonable ability to repay the credit transaction. They must
comply with the requirements of §1026.43. These are the same
requirements that banks and Mortgage Loan Originators must comply
with in order to meet the controversial Qualified Mortgage
definition. It is our belief that the average property owner
offering seller financing will not a) know what these requirements
are and b) will not know how to evaluate the criteria. They are not
going to know how to calculate debt to income ratio, residual
income, seasonal income, additional income, etc. Furthermore, can
the seller really rely on the buyer surrendering complete financial
information while they are negotiating the terms of the installment
sale? It also seems doubtful the buyer is going to want the seller
to be the custodian of this personal and confidential information.
The bottom line is if the buyer can qualify for a Qualified
Mortgage they wouldn’t be pursuing seller financing. Seller
financing does not create a financial systemic risk. The buyer
isn’t being sold a loan; the buyer is negotiating the terms of an
installment sale.
No Balloon: In TILA community banks are allowed to make loans that
have balloon payments. The rationale behind this is so they can
hedge their assets against rising interest rates and inflation.
Under the proposed rule an individual who uses seller financing is
not allowed to negotiate a balloon payment. They are denied the
same right a bank has. Anyone who is 55 years or older who cannot
use a balloon will probably die before they receive all their
equity from an installment sale. 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. An example of the use of a balloon in
seller financing would be a 70 year old retiree who sells their
rental house to the tenant who negotiates a balloon payment in 10
years in exchange for a lower interest rate. The retiree sold the
property using seller financing so she could continue getting cash
flow from the property without having to worry about doing repairs
to the property. The retiree wants the balloon so her heirs will
have cash when it is time to settle her estate. This gives the
buyer ample time to refinance or sell the property before the
balloon is due.
Fixed Rate: This restriction is reasonable, but it will eliminate
the ability for any buyer to wrap an existing obligation that has
an adjustable rate. Again, seller financing is not a loan that is
being sold to the buyer, but a negotiation of terms between buyer
and seller. For an adjustable rate to catch the buyer unaware is
highly unlikely. The buyer is the one who creates and agrees to the
terms.
This proposed rule won’t only negatively affect seniors,
minorities, and lower income individuals. These restrictions will
all but do away with seller financing which will have a negative
impact on housing, existing owners of private property, those
desiring to be property owners and the recovery of the real estate
market. It will drive seller financing underground. People will no
longer use realtors, title companies, escrow companies or record
transfer documents in order to avoid these onerous restrictions.
This is not predatory lending. The default rate we see is only
about 5%. These are not businesses like Pay Day Loans or High Cost
Finance Companies. There is no justification for this rule which
will have an economic impact on all those who are involved with or
rely on seller financing. The rule is neither necessary nor
justified by economic analysis of the use of seller financing.
States already have case law and statutes that regulate seller
financing. Seller financing has always been the alternative when
buying and selling property during financial crises. It was used in
the early ’80s when the mortgage interest rates were 20%, when the
RTC took over all the savings and loans during the early 90?s and
now due to tight credit. Just because you can’t meet bank lending
criteria doesn’t mean you shouldn’t be allowed to buy yourself and
your family a dwelling. We do not believe it was Congress’s intent
to kill seller financing and exclude hundreds of thousands of
families from home ownership, nor to leave hundreds of thousands of
people with no way to sell their non-conforming property. We
believe that will be the result if this proposed rule goes forward.
We request that you do not enact 36(a)-1.v.
I strongly encourage the CFPB to keep the current definition in
TILA of creditor and credit sale which allows 5 seller financed
transactions a year that involve a dwelling that are not table
funded with no additional restrictions.
The U.S. Supreme Court, in HALE v. HENKEL, 201 U.S. 43 (1906), noted “we are of the opinion that there is a clear distinction in this particular between an individual and a corporation, and that the latter has no right to refuse to submit its books and papers for an examination at the suit of the state. The individual may stand upon his constitutional rights as a citizen. He is entitled to carry on his private business in his own way. His power to contract is unlimited. He owes no duty to the state or to his neighbors to divulge his business, or to open his doors to an investigation, so far as it may tend to criminate him. He owes no such duty to the state, since he receives nothing therefrom, beyond the protection of his life and property. His rights are such as existed by the law of the land long antecedent to the organization of the state, and can only be taken from him by due process of law, and in accordance with the Constitution. Among his rights are a refusal to incriminate himself, and the immunity of himself and his property from arrest or seizure except under a warrant of the law. He owes nothing to the public so long as he does not trespass upon their rights.”
It is clear to me that the responsibility of our government is to PROTECT the right of the individual citizen to own real property and the UNLIMITED “power to contract” and “carry on his private business in his own way” having no “duty to the state or to his neighbors to divulge his business, or to open his doors to an investigation” so long as that citizen “does not trespass upon” the rights of other citizens. It is NOT the duty of the government to INFRINGE upon these (already existing) rights.
We must not let out rights be eroded!
Why is seller/note financing a problem that has being a great help to the people as well as the country,I just do not understand and hope not no changes will take place.
PLEASE LEAVE SELLER FINANCING ALONE!!! IT IS A VITAL PART OF OUR SENIORS’ ABILITY TO CONTINUE TO SUPPORT THEMSELVES FINANCIALLY LONG AFTER THE SMALL PENSIONS HAVE BEEN STRECTHED TO THE MAX AND THIS INCOME BECOMES THE LIFE BLOOD FOR FOOD AND UTILITIES. It should always be a part of the free interprise system of this nation to accumulate and circulate our resources for the good of all our people. Particularly in the real estate arena. YOUNG FAMILILES BULID COMMUNITIES, TAKE CARE OF THEIR PARENTS, GRANDPARENTS, THEIR CHILDREN AND GRANDCHILDREN, GENERATIONS AND GENERATIONS TO COME. THEY CONTRIBUTE TO THE PROSPERITY OF OUR COUNTRY. Some would never aspire to the AMERICAN DREAM, without the benefit and visions of our seniors to create the vechile of SELLER FINANCING. Unlike Wall Street and the Big Banks that keep selling our real estate to the cash investor who cares nothing about our communities, our neighborhoods, schools, chuches, families or our future, or our country for that matter, the sellers who are able, willing and desires to see our traditional values maintained desire to continue their good work in this arena.
Thank You