Dodd-Frank 2014

Buying & Selling Real Estate
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Dodd-Frank 2014

Mike Gibson
Real Estate Investor · Grove (Grand Lake), OK · Member since 2013 · 10 posts · 1 vote

What's the latest analysis with regard to Dodd-Frank 2014 which comes into effect January 10th as far as how it relates to real estate investors doing options, lease purchases, seller financing, etc.?

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Bill Gulley
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
12y

The problem is not with the written material but having unqualified persons providing any interpretation of law.

Brian, is that the same video you had already provided a link to?

If I were doing videos, I'd dress a little better :)

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  • Brian Gibbons
    Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
    12y

    I am putting some educational vids together on Dodd Frank, TILA, S.A.F.E. Act and other Gov Regs (I call it Govt Crap).

    Here is one, a letter from the NAR, "Impact of Loan Originator Final Rule"

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    12y

    One of the better posts.

    Just a couple comments, don't rely on that "for compensation" thinking if you don't charge a fee for the loan you're free to get away, your compensation is also made in making the deal. It leans toward Realtor activities, not free lance investors. Realtors get a bigger break.

    That part that sounds complicated really isn't, sellers who are exempt still need to use the same prudent practices.

    I'll come back, gotta run. Good stuff.

    I have listened to part of what was posted, sounds good to so far. But, be aware that you need to get professional advice, don't start taking taking opinions from investor types who have no legal or regulatory background.

    Brian, good to hear you're getting a license, good move! I took an online test the other day and got 94 out of 100, there are some new disclosures I wasn't aware of, but I am now! LOL

    You all kick it around, have a great time with it (LOL) and see ya later! :)

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  • Robert AdamsBusiness Member
    Real Estate Broker · Henderson, NV · Member since 2009 · 1k+ posts · 373 votes
    12y

    This sounds like a game changer in the OWC market.

    [email protected]702-349-9175
    The Adams Team at Rothwell Gornt Companies4.970 Reviews
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  • Ellis San Jose
    Specialist · Westlake Village, CA · Member since 2010 · 1k+ posts · 781 votes
    12y

    It is absolutely essential that you adjust your game plan on how to proceed in the new terrain of investing.

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  • Account Closed
    Dallas, TX · Member since 2013 · 4k+ posts · 744 votes
    12y

    Everyone is waiting to see how the Dodd-Frank in 2014 will work. Let's step back in time when the government sign into law the Red Flag act most business is not using it, and the OFAC act most don't use it, and I have not heard anyone going to jail by not abiding by these rules. When these two acts were working itself through the system, you had lawyers, consulting services, brokers trying to sell the service to uneducated business that would fall prey to their services.

    Joe Gore

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    12y

    I understand what Joe is saying and to an extent agree, let's not conclude that the sky is falling.

    I also agree that investors need to do their own due diligence, not only trying to understand the changes, but in seeking advice or materials concerning the issue. I suspect in this business there will be authors, gurus, those who "mentor" for profit and many others attempting to profit in this area. Get expert advice before doing anything, after that, you'll see how you need to proceed and in few years, you'll have it down-pat as to what you do.

    I suggest a prudent and informed approach, seller financing is not dead, it's just regulated.

    However, as to what hammer the regulators will use or their scrutiny, I think they are serious. We have had a broker here who is serving time now from a string of mortgage activities where, part of the issue was dealing without a license, fraud was also part of the claims against him as well as mail/wire fraud. People lost money.

    In our legal system, enforcement will be much like everything else, a slight infraction with no harm done may be one thing, repeated violations with damages will be entirely different. If you drive 3 miles an hour over the limit the cop may let you go, you drive 100 miles an hour and cause an accident with property damage, injury or death, you'll be paying dearly. Best practice, just don't speed. :)

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  • Brian Gibbons
    Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
    12y

    Here is a video tour of the CFPBs site, specifically

    2013 MORTGAGE RULE IMPLEMENTATION

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    12y

    The problem is not with the written material but having unqualified persons providing any interpretation of law.

    Brian, is that the same video you had already provided a link to?

    If I were doing videos, I'd dress a little better :)

    2Reply
  • Brian Gibbons
    Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
    12y

    The 2 Exceptions

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  • Brian Gibbons
    Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
    12y

    From Ric Thom - Paper Source Symposium

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    12y

    Brian, there are renditions of CFBP rulings, articles written and interpretations all over the internet.

    The only information investors should be studying would be the Act itself and those past a current rulings along with publications, nothing else.

    Those who have never had formal legal training will find much of the official information to be a difficult read due to many of the references given as they will need to look up those references and be able to interpret the applicability of related rulings and law. Attorneys who may be unfamiliar with financing regulations will likely be spending time wading through these matters before they can give any opinion.

    On to other aspects:

    Loan servicing, or better said, consumer debt collection activities are going to be a huge issue. Any financing arrangement, lease-options....etc.. (not repeating all that again) are about to be regulated as never before.

    While we have a few on BP that make snide remarks concerning the topic, let's just let the free speech roll in the forums, everyone should be able to pick out real and valid concerns.

    Loan Servicers:

    If anyone is in financing of any kind it's important to get feedback from a regulated collections firm. If you are going to get into any consumer activity you need to find a servicer and assign your transaction immediately upon making an obligation, you will not be able to collect nor will you be able to comply with the new requirements.

    I say that because I've been reading through examination manual materials that the CFPB Examiners will use to examine creditor activities. I'd say that if I were set up a loan servicing program as I had, it would take me about 3 months, 8 hours a day, to set up the required foundation for compliance.

    It is much the same as the areas of examination for institutional lenders. It begins with assessments of the structure and organization, then moves into an assessment of management, qualifications, certifications and administrative oversight. Then it goes to operational matters, systems (automated or manual) adopted, safeguards and compliance with applicable regulations. Flow charts of operations and activities and determination points requiring certain actions under different events. Consumer debt default, rights of creditors and consumers to object, time lines to act and recording requirements. Collection activities will be required to be logged, documented, telephone contacts recorded and reporting requirements. I'll sop.

    There is absolutely no way any 1, 2, 3 person shop will be able to meet these requirements. I have experience and I would not venture into this under these conditions without a trained, fully staffed office.

    What most are not aware of, when any regulated lending activity is examined, the lender or servicer pays for the examination one way or another. As an example, as an examiner I was paid my salary, for travel and travel time, meals and lodging. Additionally, administrative fees apply, office time, audits, report reviews and legal reviews if any. For FDIC, much of this was covered in premium requirements but banks get a big bill to pay. States also do examinations and send a bill. The tax payer does not pay for compliance examinations, the lender/servicer does.

    That will probably mean that many small servicers will either adopt of fold. Those that adopt will incur additional expenses in operations, they will either hire these issues to be taken care of or they will need staff to do so. So, we can expect loan servicing fees to increase.

    As an investor doing L/Os for example, you need to find out what these costs will be and disclose and arrange for these expenses to be covered in you deal. Good luck!

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  • Brian Gibbons
    Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
    12y
    Originally posted by Bill Gulley:
    One of the better posts.

    ....sellers who are exempt still need to use the same prudent practices.

    ...

    I am exploring, Bill the exemption for home sellers in that they do one seller financing in 12 months.

    Category One Exception from the CFPB is for those individuals, trusts or estates who do just one seller carry back transaction a year on a property that has a dwelling that the buyer will use as your primary residence.

    For these folks:

    1. ) you can have a balloon in your note the buyer.

    2.) you do not have to prove or document their ability to repay.

    3.) the note must have a fixed interest rate for five years,

    4). and at the end of five years, the interest rate can increase no more than two points per year with a cap of six points above whatever you started at.

    You have to tie it to an index like a TBill or the prime rate in the beginning.

    Say you had a low equity seller looking to sell on terms.

    You get the seller involved with a lease option assignment.

    You lease with an option from the seller.

    You assign the deal to a tenant buyer, but have the tenant buyer see a RMLO, do a 1003 mortg app, have the RMLO write an opinion in their letterhead as to their ability to repay.

    Now the Seller can create a trust or sign as an individual, as an LLC, Corp or Partnership is Category Two Exception from the CFPB.

    I would love your opinion of this.

    Brian

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    12y

    I believe you missed the part that says basically, that while a seller may be exempt, the transaction will still be held to prudent underwriting determinations, you don't have to do what a mlo would do but responsibility of it meeting the same standards is still there.

    Being exempt does not to give license to old practices.

    I believe you have interpreted the allowance of having a balloon is allowed due to the exempted seller making the financing contract, that is an implication. That doesn't follow that responsibility to ensure an exempted person must still ensure there is an ability to pay, I doubt any MLO would hang their license on that as you can't ensure repayment. What appears to be prudent with respect to balloons is having a significant ( 1/2 ) the principal paid off.

    You have mixed the balloon with an adjustable rate contract which is allowed, I believe the indexes mentioned are those used by Fannie Mae, without any adjustment in the first 5 years.

    Seems too that you are suggesting a sandwich lease, the homeowner may be exempt, that would not be a buyer who then in turn provides a financing contract to a third person to occupy. Your investor is then extending credit.

    Your MLO can give you a letter, but that's not required, any contract that runs through a MLO must have the name and MLO number on that contract, they are required to provide their seal on the note/contract. This keeps some whiz bang investor/seller from getting a letter and then changing or substituting a contract.

    I have not seen the CFPB refer to any exemption as "Category Two Exemption" the Act and exemptions define a person as any person, corporation or trust, as a real person could live in a home owned by them under any of those entities.

    The Act also includes any "wrap" arrangement. The underlying bank loan being made a part of any new financing arrangement. So, lets say the seller has zero equity, he's going to give it to you with an existing loan on a financing arrangement of any kind. That seller is then extending credit, from him, to you as it includes any underlying funds.

    If I buy from you on any contract, assuming you are exempt living in the property and I take that and then assign that agreement to a new home buyer, then at that point I'm extending credit, I don't or didn't live there, I'm not exempt at that point.

    I realize you and others will be scrapping at the sides and bottom of the barrel to find loopholes in an attempt to keep existing or past strategies in play, trying to save business with the least amount of modifications as possible. IMO, that is the wrong way to attempt compliance.

    I'm also certain there will be blatant disregards of laws in the future, that coaches, mentors, program developers, gurus and investors will continue, to include collecting payments on consumer transactions which is another issue. Frankly, I don't think my opinion will make a dent on those scrapping that barrel as they are hell bent on figuring out some way to circumvent the intent of the Act.

    Let me help some of you out here. I do not have a license to originate any seller financed contract, therefore I am not qualified to do so. Now, repeat after me, I AM NOT QUALIFIED TO ORIGINATE A SELLER FINANCED TRANSACTION UNDER THE SAFE ACT.

    Get the proper licenses and comply or leave owner occupied buyers alone. :)

    1Reply
  • Brian Gibbons
    Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
    12y

    Thanks, @Bill Gulley , I appreciate all you do.

    Brian

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  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    12y

    Can you repeat that Bill, I am confused!! :)~

    J/K by the way! That was a long enough read, I could read it ten times and still not understand it all.

    Podcast Guest on Show #130
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  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    12y
    Originally posted by Bill Gulley:
    If I were doing videos, I'd dress a little better :)

    Don't worry Brian, Bill is no snazzy dresser either, hence the generic avatar. :) LOL

    Podcast Guest on Show #130
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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    12y

    I don't even wear clothes up here, just a long white robe and I don't do videos! :))

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  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    12y
    Originally posted by Bill Gulley:
    and I don't do videos! :))

    That's the best news I have had all year! :) LOL

    Podcast Guest on Show #130
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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    12y

    Well, Will, it's not like I haven't been asked! :)

    0Reply
  • Brian Gibbons
    Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
    12y

    it may be a blessing in disguise that Bill does NOT put a picture a up.

    And a nother benefit,

    It would be boring around this BP forum without him too. :)

    @Will Barnard :)

    1Reply
  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    12y

    Very true Brian, very true!

    Podcast Guest on Show #130
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  • Brian Gibbons
    Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
    12y

    As I said, I am adding more links to Dodd Frank info

    New source tool from the CFPB

    http://www.consumerfinance.gov/eregulations/1005

    http://eregs.github.io/eregulations/

    ERegulations supposedly is designed to make the CFPB easier to navigate.

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  • Brian Gibbons
    Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
    12y

    Mortgage Servicing Final Rule vid

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  • Brian Gibbons
    Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
    12y

    Loan Originator Compensation Rule

    0Reply
  • Brian Gibbons
    Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
    12y

    Ability to Repay and Qualified Mortgage Rule

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