Skip to comments.No more owner financing for real estate.
Posted on 07/28/2011 9:52:58 AM PDT by Bill W was a conservative
The Federal Reserve Board on Tuesday requested public comment on a proposed rule under Regulation Z that would require creditors to determine a consumer's ability to repay a mortgage before making the loan and would establish minimum mortgage underwriting standards.
The revisions to the regulation, which implements the Truth in Lending Act (TILA), are being made pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act. The proposal would apply to ALL CONSUMER MORTGAGES(except home equity lines of credit, timeshare plans, reverse mortgages, or temporary loans).
(Excerpt) Read more at federalreserve.gov ...
Quiet down now...it’s for your own good.
Quiet down now...it’s for your own good.
I’m not sure this is what this means. I don’t see the government telling individuals they can’t finance their own property. Then again, this may be the EXACT reason for this crap.
You've got one arm of government requiring them to make loans to people who can't repay; another branch requiring them to determine creditworthiness before granting a mortgage. If you'd get the government out of it, the lenders would do what comes naturally, i.e., ensure that no one gets a mortgage unless he can show that he stands a reasonable chance of paying it back.
Many probably don’t even know what this means.
A relative sold his house, providing the financing terms to the buyer. No banks or lawyers were involved just a notary for the contract.
It was a good deal for both of them. The buyer could’t qualify for a mortgage and the seller wanted to keep the loan interest as profit. He turned his old house into an investment pure and simple. He died a few years later and his widow continued collecting on the loan. The buyer eventually paid it off and she gave him title. She made quite a chunk of change off the loan.
Just look at the interest tables for a 30-year mortgage and you’ll see why they want to outlaw owner financing. The bankers don’t want the competition.
This bill represents crony capitalism and oligarchy.
Seemingly the objective of Dodd-Frank is to curtail financing on real estate transactions, forcing consumers who still can qualify and endure the process successfully to only have a limited number of large institutions as their options.
Without being fully enacted just yet, this massive Government package has insured the housing depression is now the new normal.
If there’s any remaining doubt that generically, government interference in the market destroys the market once taken to the conclusion governMENTALists want, this should be your proof.
And as posted upthread, they want complete control of the RE market so that nothing will be left undestroyed.
I owner-fiananced a property; I had no mortgage on the property myself. We did not use a real estate company. I hired a real estate attorney to review my standard form I pulled off the state website.
It was an very simple and fast transaction. I had 30% down from the buyer and felt rather secure as failure to provide proof of insurance or property tax payment resulted in default.
In 2006 I bought a 20 acre parcel with a house. I couldn’t finance that at the time. Put 40% down and paid off the 2-year balloon mortgage in 2008. Case closed.
Uncle Sam would stop me tomorrow with this plan I guess. So I am stuck with half, ten acres of prime vacant residential and cannot finance a buyer in my future I guess.
This govt HAS GOT TO GO.
The Fed is the consigliere and the enforcer of the banking cartel.
All transaction smust go through the banking cartels central clearinghouses to be preoperly monitored, taxed or forbidden.
Anything that isn’t expressly allowed is specifically forbidden.
Welcome to the New Amerika.
This is ridiculous - owner financing of a mortgages is a PRIVATE TRANSACTION BETWEEN TWO PEOPLE.
When is it going to stop?
Without owner financing I could never have bought my first home in 1992. I had recently been divorced and my credit had been messed up trying to get back on my feet. I put 15% down, the payments were less than my rent had been and paid off the the 8 year balloon a year early with a refinance.
The guy I bought it from was the father of a friend, it worked out well for us all - he no longer was dealing with the headaches of a tenant, I was able to fix my credit and he made money on the deal, just as I did when I sold it in 2003. Win Win all around.
When I owner financed my property, there was no government agency to get approval from. I don’t see how an individual that has no business liscense would ever get impacted.
I read an article from the National Association of Realtors that agreed with that assesment. I’ll link it if I find it again.
All rights come from the Government. The government giveth and the government taketh away. Submit or die.
Does Regulation Z currently apply to owner financing? My guess is it does not. Which would mean these revisions would also not apply to owner financed transactions.
You would have to look at the definition of creditor under Regulation Z.
Read the comments section.
Of course this will be applied to owner financing in time.
Let’s see now...
If we “require” (not “recommend”) creditors to “determine” (not “evaluate”) a consumer’s ability to repay a mortgage during its FUTURE term, then don’t we also “require” the government to create a corps of fortune-tellers, sooth-sayers and wizards to “predict” that future?
==> (Sorry, Mr. Smith, we “experts” forecast that your employer will close its doors in 2015 — so NO mortgage loan for you!)
And just what will the punishment BE for any creditor that ever makes a loan that turns out badly? Write-off of the principal? Isn’t that what is supposed to happen NOW — without the proposed rule?
The opportunities for fraud and political mischief here verge on the unbelievable! If every business decision creates the risk of a criminal indictment, then business decisions will slow down and the economy will slow down. Hmmm..... Just like now.
If the Federal Reserve is really concerned about preventing “bad mortgage loans”, then why doesn’t the Federal Reserve require banks to “reserve” 100% of every mortgage loan that is supported by a down-payment of less than 20%? That is simple, impartial and easy to understand. Banks and the FDIC would be fully protected by such a reserve requirement.
But there would be no chance to “reward” political “friends” with such a policy, would there?
Unless you were in the loan business commercially requiring a license, no approval process would take place.
This is part of a continuing move to funnel financial transactions through a few institutions that can be more easily scrutinized by the federal government. Big brother can more readily keep his eye on a few banks instead of a large number of individuals that want to work things out for themselves. The ultimate goal, it appears (not from this article, but from the Dodd-Frank Bill and others), is to have a handful of large banks in the nation that can be controlled by the federal government.
We sold the same house 3 times this way. IF they defaulted we just resold it. Made money every time. Eventually put it on the market and got rid of it for good.
§ 226.2 Definitions and rules of construction
(17) Creditor means:
(i) A person who regularly extends consumer credit that is subject to a finance charge or is payable by written agreement in more than four installments (not including a down payment), and to whom the obligation is initially payable, either on the face of the note or contract, or by agreement when there is no note or contract.
- - - - -
If this is not your business, it doesn't apply to you.
Thanks. The effect of rule by regulatory pronouncements is bad enough without exaggerating particular examples.
Will it do away with land contracts?
It would be no different that claiming commercial trucking rules apply to me as I haul my tractor on a trailer to the field.
Great point. Which is why the feds want to force it to be financed by inter-state institutions.
The law states it only applies to creditors making loans more than 5 times in a single calendar year.
This is not a law about individual sales, but those in the business of making loans.
PART 226TRUTH IN LENDING (REGULATION Z)
§ 226.2 Definitions and rules of construction.
” It would be no different that claiming commercial trucking rules apply to me as I haul my tractor on a trailer to the field. “
Maybe under ‘original interpretation’ but —
Wickard v. Filburn
Wickard v. Filburn, 317 U.S. 111 (1942), was a U.S. Supreme Court decision that recognized the power of the federal government to regulate economic activity. A farmer, Roscoe Filburn, was growing wheat for on-farm consumption. The U.S. government established limits on wheat production based on acreage owned by a farmer, in order to drive up wheat prices during the Great Depression, and Filburn was growing more than the limits permitted. Filburn was ordered to destroy his crops and pay a fine, even though he was producing the excess wheat for his own use and had no intention of selling it.
The Supreme Court, interpreting the United States Constitution’s Commerce Clause under Article 1 Section 8 (which permits the United States Congress “To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;”) decided that, because Filburn’s wheat growing activities reduced the amount of wheat he would buy for chicken feed on the open market, and because wheat was traded nationally, Filburn’s production of more wheat than he was allotted was affecting interstate commerce, and so could be regulated by the federal government.
Little late: This proposed rule came out on April 19.
“The Board is soliciting comment on the proposed rule until July 22, 2011. General rulemaking authority for TILA is scheduled to transfer to the Consumer Financial Protection Bureau on July 21, 2011. Accordingly, this rulemaking will not be finalized by the Board.”
I am outraged that something of this sort would even be a topic of discussion - if I wish to lend someone some money, that’s my business. Frankly, if I lend them money to buy my house, I have security, I get a monthly check, the buyer has a house to live in, I probably spent some money to fix up the house before the sale and the buyer’s wife definitely will spend some money to upgrade the kitchen and a bathroom or two. What’s the downside to anyone, so long as state usury laws and laws concerning the transfer of real estate are followed? WTF business of the Fed or the federal government is it if I choose to lend my own money!
Rope. Tree. Banksters and politicians. Some assembly required.
“I am not sure how this could be enforced.”
Easy. Recorded Notes and Deeds of Trust. Computers. Tax Returns.
That was still a regulation directly applicable to the man’s profession. He was trying to claim an exception due to his use, not his work or method of earning.
Look at my posts above. Unless you owner finance property more than 5 times a calendar year, you are specifically excluded.
I doubt if banks are very worried about competition from a few owners carrying seller financing
The law states it is not applicable to individuals unless you perform more than five real estate loans in a calendar year.
I have owner financed property before. You do not go through an approval process as the note is only between the two individuals.
” Unless you owner finance property more than 5 times a calendar year, you are specifically excluded. “
Not arguing with you there.. (although over-reach by regulatory agencies over time is hardly an unknown phenomenon...)
I was merely demonstrating that your contention that non-interstate transactions and activites are not subject to Federal interference/regulation - ain’t necessarily so....
This is my business. I am a small time real estate investor and sometimes the way I try to take a profit is to create a mortgage, usually one that “wraps around” my own obligation to someone else. I am a sub prime borrower and a sub prime lender. No way a can I or most of the folks I deal with qualify a conventional loan. Guess I’ll have to learn how to steal or get food stamps and section 8 housing.
“...A person who regularly extends consumer credit that is subject to a finance charge....”
OK, so what is the definition of “regularly extends consumer credit?” What if I buy homes, fix them up and then sell them with owner financing? Am I regularly extending consumer credit if I do this 2x/year? 4x? 12x? I’m not a bank, I’m in the business of fixing up houses and selling them, and if selling is made easier by providing financing to the buyers, what business is that of the government?
Owner-financing is very different from an ordinary mortgage in the sense that the person financing is not actually giving anyone any money. His security is property that is already in his possession and in most cases he is able to define default in much stricter terms than a bank can.
That is a contract for deed. Not quite the same as a mortgage but it depends on what is is................
According to a buddy of mine, a wholly unreliable source, the Federal Reserve (who I used to think didn’t care much for the comments from people like me)has extended the comment date deadline to JULY 29 - tomorrow. I have also called my Congressman, the thoroughly conservative Mick Mulvaney asking him if he has any room in his garage for a cot for me.
Oh, never mind, I just saw the 5x language.
BTW, that’s easy to get around for those who buy 6 or more houses/year and sell with owner financing: simply set up 2 or more separate LLCs or Limited Partnerships (maybe better with different people running them) to do the same thing. Each one does 5 or less transactions per year.
Since it is your business, I suggest you read it.
I don’t read it as eliminating your nitch, but you will have some required disclosure forms to complete.
I am not a lawyer or pretend to be. But I come here to share my opinion only. That an $2 will get you a cup of coffee at some places.
We were able to undercut the bank interest rate, provide a nice income stream to the elderly owner of the house so she could move into assisted living without a big tax hit and pay down the principal much faster.
We owned the house in seven years (of abject poverty) and were able to pay cash for our farm simply because no bank got rich at our expense.
This is why the banksters wish to make it illegal.
I agree, this is just a set up to take away the right to personally finance property. Owner financed property notes are generally NOT sold. By forcing this onto the banking system they have a new source of loans.
even worse since only fannie or freddie will be doing the private home loans this is just another government grab ala student loans.
Don’t worry, Ma’am. You’re just a little bit pregnant.
“They came for my neighbor who had done more than five seller originated financings last year, but that was OK, because I took back paper on fewer than five properties I sold last year.”
Definition of a Kulak: peasant with more than two cows and one day laborer.
Definition of Enemy of the State: man who sells and takes back paper on more than 5 properties in a year’s time.
Yeh, I know, a little melodramatic.
How are they going to enforce all this? In South Carolina, you need to settle RE transactions through an attorney.
” How are they going to enforce all this? “
All RE transactions, in order to be legitimate, must involve, at some point, a County Recorder of Deeds - simple enough to add the criterion that any transfer of deed must have the lien-holder of record from an ‘approved’ list....
Since it is your business, I suggest you read it.
I dont read it as eliminating your nitch, but you will have some required disclosure forms to complete.
Oh, yes, the forms. Yes, sir, I have them right here...with my identification papers and licenses to buy and sell real estate.
Look, pal, the very fact that the pointy headed Bolsheviks see any sort of regulatory role at all in private transactions with debt creation is the problem.