Tags:
*HR 1728 - What It Says and Why It Will Hurt Consumers and Small Business*
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 recently passed by the 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 read here <http://m1e.net/c?76771869-LquLcmgPo1bKY%404325657-JmpbCa2VA4mmc>.
*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 â"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 â"licensed mortgage originator'. State laws vary, but typically a â"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 â"licensed mortgage originator'.
*What Kinds Of Transactions Will Be Covered?*
Selling your own home using a land contract or owner-held mortgage with the intent of getting a faster sale, a higher sales price, or higher rate of interest than is available in other investments will no longer be an option (unless that sale is limited to once every three years). Carrying back second mortgages on investment properties you sell will also be a violation of the law. In fact, any kind of installment sale on residential properties (including houses, condos, mobile homes, and residential land lots more than once every three years will be subject to this legislation.
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 â"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 a lot 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. For a list of interests and their positions, go here <http://m1e.net/c?76771869-iYo4JfUSb0hfQ%404325658-SBjzujhWqWJK6>. 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?*
Contact your senator via phone, fax, e-mail or snail mail. Implore them to vote NO on the bill as it's currently written. You can get your senator's contact information here <http://m1e.net/c?76771869-o0zK5SOs5OfME%404325659-Q6VZCld232rFk>. We have included some sample letters assembled by Vena Cox-Jones that will assist you in knowing what to say and how to say it. Additionally, we at NoteWorthy have written a fourth letter for owner financed note brokers.
Please keep in mind that our best plan of action is to address how this legislation will hurt â"the little guy', i.e. buyers and sellers of properties. Even though we all consider ourselves â"the little guy', the government has made it clear that anyone associated with mortgages is â"the bad guy', and has little interest in how this bill may affect your business, your family, or your livelihood. Be civil, cordial, and intelligent in your communications with your senators' offices. Remember you can catch more flies with honey than with vinegar.
We also need your help in getting the word out. Send this e-mail to anyone you know that has a vested interest in its outcome (hint: that would be almost everyone you know). Additionally, NoteWorthy is in the process of starting a website that will allow you to sign up to receive updates on our progress to defeat this legislation. You will all be notified when the site is up and ready.
Take action today or suffer the consequences of this legislation tomorrow. *ASK YOUR SENATORS TO VOTE **NO ON HR 1728!!!
SAMPLE LETTERS*
*IF YOU HAVE A REAL ESTATE LICENSE*
Dear Senator [name];
My name is Vena Jones-Cox and I am a life-long resident of Cincinnati.
I am writing you to encourage you to vote NO on HR 1728, the "Mortgage Reform and Anti-Predatory Lending Act".
While many of the provisions of the act are positive steps toward mortgage reform, the inclusion of private owners in the act (see section 101(3)(e)) will enormously reduce the housing choice of Ohioans and the ability of home owners to sell properties in this already-slow market.
As a real estate broker, I have seen several dozen cases in the past year of home sellers and buyers coming to an agreement for an installment sale on a property that the owner desperately needed to sell (often to avoid foreclosure) and the buyer desperately wanted to buy, but could not raise the downpayment needed for conventional financing.
In all cases, these sales turned out to be win-win deals for the buyer and seller; the seller was able to get rid of an unwanted property to a buyer who loved it, and the buyer was able to get his new home at an affordable payment and interest rates with none of the usual costs (points, application fees etc) inherent in more conventional mortgage transactions.
In Ohio, these transactions are already regulated by state law: a low maximum interest rate is already in place, and both the buyer and seller are protected by other regulations at the state level.
In defense of private property rights, owners should be exempted from the burdensome and unnecessary rules that this law foists upon them. In its current form, it would all but shut off the "owner financing" market that is the only way that many sellers can sell and many buyers can buy right now.
PLEASE DO NOT LET THIS RESTRICTION ON PRIVATE PROPERTY RIGHTS PASS THE SENATE. It is unnecessary to stop private buyers and sellers from transacting business that is beneficial to both of them--they are not the problem that the bill seeks to solve. HR 1728 would be extremely harmful to thousands of your constituents.
It will exacerbate the problem OF foreclosure, as fewer sellers will be able to sell their homes to avoid it, and CAUSED BY foreclosure, as fewer buyers who have recently experienced foreclosure will be able to re-start the process of home ownership inexpensively and easily by negotiating owner financing.
Thank you for your consideration;
NAME
Licensed Real Estate Broker license #
Phone #
email
*IF YOU SELL HOUSES WITH OWNER FINANCING*
Dear Senator [name];
My name is Vena Jones-Cox and I am a life-long resident of Cincinnati.
I am writing you to encourage you to vote NO on HR 1728, the "Mortgage Reform and Anti-Predatory Lending Act".
While many of the provisions of the act are positive steps toward mortgage reform, the inclusion of private owners in the act (see section 101(3)(e)) will enormously reduce the housing choice of Ohioans and the ability of homeowners to sell properties in this already-slow market.
As a professional housing provider, I sell several houses each year to home buyers on installment sale [or, if you have not purchased a property, add here: "I had planned to sell several houses this year on installment sale]--a practice that would become impossible under this law in its current form.
I find that in today's slow market, the best way for me to help buyers who desperately want to become homeowners, but who cannot raise the down payment or meet the other terms needed for conventional financing, is to allow them to make payments directly to me.
These sales are win-win deals for both the buyer and myself; I am able to turn over homes that I've bought and rehabbed (often from foreclosures) to buyers who love and can afford them, and the buyer can get his new home at an affordable payment and interest rates with none of the usual costs (points, application fees etc) inherent in more conventional mortgage transactions.
In Ohio, these transactions are already regulated by state law: a low maximum interest rate is already in place, and both the buyer and seller are protected by other regulations at the state level.
Without the ability to sell homes in this way, I will no longer be able to invest in and renovate any of the tens of thousands of vacant, ugly houses placed on the market by the foreclosure crisis, and my small-but-beneficial business will literally be in ruins. Perhaps more importantly, the homeowner-buyers that I serve will be forced to rent rather than moving toward the American dream of home ownership.
In defense of private property rights, owners should be exempted from the burdensome and unnecessary rules that this law foists upon them. In its current form, it would all but shut off the "owner financing" market that is the only way that many sellers can sell and many buyers can buy right now.
PLEASE DO NOT LET THIS RESTRICTION ON PRIVATE PROPERTY RIGHTS PASS THE SENATE. It is unnecessary to stop private buyers and sellers from transacting business that is beneficial to both of them--they are not the problem that the bill seeks to solve. HR 1728 would be extremely harmful to thousands of your constituents.
It will exacerbate the problem OF foreclosure, as fewer sellers will be able to sell their homes to avoid it, and CAUSED BY foreclosure, as fewer buyers who have recently experienced foreclosure will be able to re-start the process of home ownership inexpensively and easily by negotiating owner financing.
Thank you for your consideration;
NAME
Perfect Properties, inc.
Phone number
email
*IF YOU BUY HOUSES WITH OWNER FINANCING*
Dear Senator [name];
My name is Vena Jones-Cox and I am a life-long resident of Cincinnati.
I am writing you to encourage you to vote NO on HR 1728, the "Mortgage Reform and Anti-Predatory Lending Act".
While many of the provisions of the act are positive steps toward mortgage reform, the inclusion of private owners in the act (see section 101(3)(e)) will enormously reduce the housing choice of Ohioans and the ability of homeowners to sell properties in this already-slow market.
In the past year, I have purchased and renovated several homes--made possible only because the sellers of these homes were able to sell to me using owner financing in an unrestricted way.
For many of these property owners, seller financing was the only way to unburden themselves of an unwanted property that, in some cases, was headed toward foreclosure before I purchased it.
Without this ability, I cannot continue to buy and renovate properties in the neighborhoods that so need my colleagues and me to invest our time, energy, and money in rehabbing properties. Bank financing is not an option for these properties because of the condition; only financing carried by the sellers will suffice.
Section 101(3)(e) would keep my sellers from utilizing this method of getting rid of unwanted properties in today's market, should they have more than 1 to sell.
In defense of private property rights, owners should be exempted from the burdensome and unnecessary rules that this law foists upon them. In its current form, it would all but shut off the "owner financing" market that is the only way that many sellers can sell and many buyers can buy right now.
PLEASE DO NOT LET THIS RESTRICTION ON PRIVATE PROPERTY RIGHTS PASS THE SENATE. It is unnecessary to stop private buyers and sellers from transacting business that is beneficial to both of them--they are not the problem that the bill seeks to solve. HR 1728 would be extremely harmful to thousands of your constituents.
It will exacerbate the problem OF foreclosure, as fewer sellers will be able to sell their homes to avoid it, and CAUSED BY foreclosure, as fewer buyers who have recently experienced foreclosure will be able to re-start the process of home ownership inexpensively and easily by negotiating owner financing.
Thank you for your consideration;
NAME
Perfect Properties, inc.
Phone number
email
*IF YOU ARE A NOTE BROKER*
Dear Senator [name];
My name is Clint Hinman and I have been a resident of Washington since 1993.
I am writing to encourage you to vote NO on HR 1728, the "Mortgage Reform and Anti-Predatory Lending Act".
While many of the provisions of the act are positive steps toward mortgage reform, the inclusion of private property owners in the Act (see section 101(3)(e)) will enormously reduce the housing choices of Washingtonians and the ability of homeowners to sell properties in a market already languishing from an abundance of unsold properties.
As someone who buys and brokers owner financed notes, I encounter hundreds of instances every year where home sellers and buyers came to an agreement for an installment sale on a property that the owner desperately needed to sell (often to avoid foreclosure) and the buyer desperately wanted to buy, but could not raise the down payment needed for conventional financing.
In every situation, these sales were win-win deals for the buyer and seller: The seller was able to get rid of an unwanted property to a buyer who loved it, and the buyer was able to get a new home at an affordable payment and interest rate with none of the usual costs (points, application fees etc) inherent in conventional mortgage transactions.
In Washington, these transactions are already regulated by state law. A low maximum interest rate is already in place, and both the buyer and seller are protected by other regulations at the state level.
In defense of private property rights, owners should be exempted from the burdensome and unnecessary rules that this law foists upon them. In its current form, it would all but shut off the "owner financing" market, which is often the only option for many sellers to sell and buyers to buy right now.
PLEASE DO NOT LET THIS RESTRICTION ON PRIVATE PROPERTY RIGHTS PASS THE SENATE. It is unnecessary to stop private buyers and sellers from transacting business that is beneficial to both of them - -they do not cause the problems this bill seeks to solve. They do not originate these notes to sell to government-sponsored entities (Fannie Mae, Freddie Mac, FHA, etc.), but instead hold them as investments, often as a source of long-term income. HR 1728 would be extremely harmful to thousands of your constituents if passed as currently worded.
This legislation will exacerbate the problem OF foreclosure, as fewer sellers will be able to sell their homes to avoid it, and CAUSED BY foreclosure, as fewer buyers who have recently experienced foreclosure will be able to re-start the process of home ownership inexpensively and easily by negotiating owner financing.
Thank you for your consideration.
