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Loan Servicing - Who Needs It?
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Loan Servicing - Who Needs It?
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Free PDF E-Booklet
Free PDF E-Booklet
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HR 1728 – What It Says and Why It Will Hurt Consumers and Small BusinessBy Clint Hinman
The U.S. Senate will soon be considering a bill that will severely restrict the property rights of millions of Americans and the way you do business going forward. What Are We Talking About? HR 1728 was passed in May 2009 by the U.S. House of Representatives with little fanfare and even less press coverage. Not until it was referred to the Senate did it grow legs and start getting the attention of everyone it will affect. The full text of the bill can be found at http://tinyurl.com/1728text. What Does It Say? The proposed legislation focuses upon the predatory lending practices of yesteryear and the resulting subprime debacle, imposing stringent requirements on mortgage brokers, servicers, appraisers, etc. Unfortunately, owner financing gets caught up in the dragnet, and the impact could be devastating. The offending text of the bill is in section 101(3)(e), which defines who is exempt from being a ‘licensed mortgage originator’: '(E) does not include, with respect to a residential mortgage loan, a person, estate, or trust that provides mortgage financing for the sale of 1 property in any 36-month period, provided that such loan-- (i) is fully amortizing; (ii) is with respect to a sale for which the seller determines in good faith and documents that the buyer has a reasonable ability to repay the loan; (iii) has a fixed rate or an adjustable rate that is adjustable after 5 or more years, subject to reasonable annual and lifetime limitations on interest rate increases; and (iv) meets any other criteria the Federal banking agencies may prescribe. What Does This Mean? As long as you provide owner financing on the sale of your property no more than one time every three years, you will not be in violation of the statute. Any individual who does sell more than one property every three years via owner financing will be in violation unless they are a ‘licensed mortgage originator’. State laws vary, but typically a ‘licensed mortgage originator’ must have a $25,000 to $50,000 surety bond, three years mortgage origination experience, a physical business office in the state in which the property is located, and continuing education requirements. In other words, very few, if any, ‘Mom & Pop’ sellers will ever jump through the hoops to become a ‘licensed mortgage originator’. What Kinds Of Transactions Will Be Covered?
The original bill presented to the House didn’t make any exceptions to owner financing. The National Association of Realtors argued to include the exception of one owner financed property every three years. Without addressing owner financing, many in the House contended owner financing would become the ‘loophole’ for predatory lenders to continue their exploitative ways. What’s The Problem? Owner financed notes are not loans. There is no transfer of money, no points or closing costs, and no mortgage brokers involved. They are not created with the intent of selling them off to government-sponsored entities like Fannie Mae, Freddie Mac, or FHA. They are installment sales. The borrower receives no money that must be repaid, only a property on which periodic (read: installment) payments must be made. Just as egregious is the loss of private property rights. The government should have no power to legislate how property owners dispense of their properties. If a property owner is willing to finance the sale of a property to a buyer, whom is the government trying to protect by making the transaction illegal? States already have usury laws and servicing requirements that protect the purchasers. If passed by the Senate, this legislation will: 1. Severely limit the number of property owners who can legally owner finance the sale of their properties. 2. Make violators out of everyday Americans who, unaware they are breaking the law, are merely trying to sell their properties and/or offering financing to prospective homeowners who cannot obtain conventional financing. 3. Require obscene amounts of due diligence on the part of note investors to make sure all facets of this legislation have been complied with. 4. Give prospective homeowners even fewer options to realize the American Dream of homeownership. 5. Cost the U.S. taxpayers over $400 million dollars to enforce. What is NoteWorthy Doing About It? We at NoteWorthy are lobbying to exempt owner financing from this legislation. Owner financing did not contribute to the subprime meltdown in any way, shape, or form. The housing catastrophe was caused by lenders making bad loans and sloughing them off immediately to unsuspecting government agencies and Wall Street, leaving them without a chair when the music stopped. Owner financing cannot be considered predatory by the obvious fact that the owner takes on all liability and risk of default by the borrower. Underwriting is done much more carefully when the lender is also the long term payee. Who’s With Us? Most industry associations do not want this bill to become law. In fact, the opponents of this legislation far outnumber those who support it. Unfortunately, many consumer groups oppose this bill for completely different reasons than we do: Namely, they don’t think the legislation is restrictive enough. What Can I Do? Ask your Senators to vote NO on the bill as it’s currently written. Getting your message to your Senators is remarkably easy – visit www.senate.gov and click on “Senators”. A list of websites for all 100 Senators is provided, and you can e-mail your concerns from there. Clint Hinman is the Editor of The NoteWorthy Newsletter, the leading publication for buyers, sellers, brokers, and investors in the seller-financed real estate note industry. Contact Clint at clint@noteworthyusa.com or visit www.noteworthyusa.com for a free sample newsletter and subscription information. ("Reprinted and used with Permission of the Author - 7-2009") |
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Note Servicing Center, Inc.
PO Box 77 - Midpines, Ca. - 95345
Phone: (209) 742-5732 - Fax: (209) 742-7153
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