Given the Dodd-Frank Act’s ill-advised, uninformed and, frankly, insane assault upon seller mortgages as virtually “predatory lending,” members of Congress —who vote on bills they have never read (as a legislative director in the US Congress for years I can assure you that is true) — and cushy-jobs-for-life-can’t-be-fired-no-matter-what-they-do-or-refuse-to-do bureaucrats (who determine how the laws that members of Congress never read are to be interpreted and enforced) need to understand is that seller mortgages are not loans — they are installment sales. (The note industry coalition SaveSellerFinancing.org represents us in this endeavor.)
Here is ammunition for our cause straight out of Capitol Hill. Unlike anything else appended to the word “Congress,” I hold the Congressional Research Service (CRS) in high regard. It was invaluable when I was working in Congress. I found a CRS analysis that says:
“In effect, an installment sale is the exchange of the seller’s property for the buyer’s promise to pay at a later date. The promise to pay is usually evidenced by a note, mortgage, or other written debt instrument. It is important to recognize that this sale is simply the exchange of one type of asset (the house, small business, or whatever was sold) for another type of asset (the debt instrument).” (CRS RS20432: Recent Changes Affecting Installment Sales, May 11, 2000, updated January 15, 2002, by Gregg A. Esenwein, emphasis added.)
FYI, don’t forget to register for the Paper Source training on non-performing notes in Las Vegas this week, Nov. 20-22. For info and to register, go to http://papersourceseminars.com/non-performing-notes-seminar-2014/
I totally agree the extension of credit is not the same as a loan. Let us hope the courts and CFPB will see it the same way. Bureaucrats and legislators can twist logic and facts to fit whatever they want the outcome to be. Keeping my fingers crossed.
It makes more sense to consider seller carry back financing an extension of credit or an installment sale rather than equating it to an institutionally originated loan. They should be exempt from the Dodd-Frank Act.
In addition to the above comments, servicing of seller-financed loans should not be covered by the Mortgage Loan Servicing rules. This is an accounting function and would usually be covered by a separate servicing agreement. The public is better protected by having a third party service these loans for proper accounting and perhaps payment of insurance/taxes held in reserves which can benefit the borrower and seller.
Now if we can only get the incoming Congress to do something about it.