As long as you believe that industry groups will correctly practice self-regulation, there is no issue. Enron comes to mind. But think about it. Banks would never loan to people who aren't qualified. Right?
Andrew Syrios : why should stated income loans be illegal? If anything the person who lies should be held responsible for being deceptive. But if someone wants to loan money to someone based on stated income, that's on them. And if someone wants to buy that paper, that's on them.
The government has no right to dictate an agreement to borrow and loan money between free individuals.
The rules against "stated income" we're done for one reason and one reason only. To encourage people to take less write off's to have more taxable income. I know plenty of millionaires who have zero dollar tax returns due to the nature of their (legal) business.
@Joseph Hennis Regarding "The repeal of the glass-steagal act in the 90's is what lead to the financial crisis of 2008" yes, that was it. Two other acts helped seal our fate. That repeal Joseph mentioned (see note (1)) called the Financial Services Modernization Act of 1999 (or Gramm–Leach–Bliley Act) coupled with two others, the , and the 2004 institution of the (CSE) at the SEC.
But the most telling document of all is this one: . Below is the first paragraph. Remember, this was put out at the end of September 2008, just after Lehman Brothers filed bankruptcy, Bear Stearns insolvency, and Fannie Mae and Freddie Mac are 'taken over'. These are the Chairman of the SEC's words:
The last six months have made it abundantly clear that voluntary regulation does not work. When Congress passed the Gramm-Leach-Bliley Act, it created a significant regulatory gap by failing to give to the SEC or any agency the authority to regulate large investment bank holding companies, like Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers, and Bear Stearns.
And to doubters that we should have regulations, this paragraph from the same document from the SEC speaks volumes:
As we learned from the CSE experience, it is critical that Congress ensure there are no similar major gaps in our regulatory framework. Unfortunately, as I reported to Congress this week, a massive hole remains: the approximately $60 trillion credit default swap (CDS) market, which is regulated by no agency of government. Neither the SEC nor any regulator has authority even to require minimum disclosure. I urge Congress to take swift action to address this.
So... dust off your mirrors!! Kidding, of course. The regulates mirrors;)
Notes:
1) From which has better words than what I put in notepad, "...repealed part of the Glass–Steagall Act of 1933, removing barriers in the market among banking companies, securities companies and insurance companies that prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and an insurance company."
The banksters needed to get the heat and attention off them, so they paid Dodd and Frank (and all their buddies) to pass this bill. Distracts public away from their sins and created a bureaucracy to go after used car dealers, pawn shops, payday loan stores and bill collectors. A drop in the bucket of the US economy.
I've become an anti-corporation guy in my old age. We live in an oligarchy but are told it's a democracy.
Close it down, it doesn't protect us from the banks anyway.
I'm all for it. I do A LOT of lease to own deals, and I'm proud to say I'm one of the good guys when it comes to lease to own agreements. I have come across some people in RE groups that make it their business to screw the buyers in the end with unattainable terms so they can recycle the property back on the market, even brag about it. (Honestly I don't know how they look in the mirror) But when Dodd-Frank became law, I seriously stopped doing any lease purchase deals, until I fully understood the law, and opted to sell places cash or conventional financing only during the period of discovery. Scumbags will be scumbags regardless of the law on the books, and the treasury dept should keep the banks on a short lease, otherwise yeah, I would be happy to see it go.
@George Skidis 24 seems like a lot of seller financed properties lol. 2 a month? That's like 2.2-5 mil in financing you have out there pending property values in the Midwest. California, you're allowed 3. If you had 24 seller financed homes out here though you're looking at 12M minimum in orange county at least. I hope you get some concessions though. As an investor selling my property? I would 9 times out of 10 want the buyer to get full financing so I could get my lump of change for my next project. That's just me though. There's a lot of good financing available and if the Financial Choice Act gets through I midrange financing will exist all over. (Midrange being the area between conventional and HML)
Its a start. I am sure there will be much negotiation to get passed by the senate. I am hoping it will open up some opportunities to do more Installment sales.
@Joe Kim A lot depends on where you do business. We work in low income areas and high end deals as well. You could Seller Finance 24 homes in Cahokia, IL and have less than $500,000 on the street. Now these homes would list for $40,000 each but if you had more than $30,000 in them you are doing something wrong.
However, a house I am getting ready to list for $329,000 might sound small to someone from California. Now let me tell you it is in a desirable One access neighborhood. Cul-De-Sac.
Second floor has 3 bedrooms and a full bath.
Main floor has Master Bedroom with tray ceiling, a master bath with two sinks, both shower and Jacuzzi, Eat in Kitchen, all appliances, Formal Dining Room, a half bath off the hall, Living Room with Fireplace and 10' ceiling, Laundry Room with deep sink and two car detached garage.
Basement could be used as an in-law suite. It has a family room with wet bar, the fifth bedroom, utility room and full bathroom that has a 5' wide senior accessible low threshold shower. and a utility room with storage area.
Also two new furnaces and AC units, new roof 2017, new gutters 2017 some carpet, some hardwood, some vinyl. Total area about 5,000 square feet.
Now let me step back. Due to the laws in Illinois, I would rather due an eviction than a foreclosure. Lease Options are great for me, Seller financing not my bag. However, I would like the freedom to do either.
The Seller Finance Coalition has the support of both the National Real Estate Investors Association and the National Apartment Owners Association. Those folks know more about it than I do. I trust them both.
Some of you guys who think that the repeal of glass-Stiegal or this regulation or that regulation enabled liar loans and 2008 aren't being realistic. If the Feds enforced fundamental and basic reserve and credit requirements the build up of suspiciously collateralized equity to 2008 would never have been allowed. Obviously the government facilitated the banks in expanding questionable credit for various social and political reasons.
It's this venal, agenda driven, quasi-government/corporate collusion that often causes these unsurprising disasters. Not entirely different than how utilities in California fail or the current state of out private/public healthcare system.
After the damage is done Liberals blame private corporations and conservatives blame government when the truth is they enable each other.
"Obviously the government facilitated the banks in expanding questionable credit for various social and political reasons."
Facilitated? Heck they demanded it! They said the banks were redlining and not offering loans to minorities so they wrote regulations to make them loan the money for home loans so everyone could fulfill the dream of owning their own home.
When the banks had to foreclose and the bubble burst the guys running the government had to blame somebody to get the stench off of them. Chris Dodd and Barney Frank. Spit!
It's actually a bad idea some aspects of it should be reworked so the secondary market doesn't get pummeled, prominent deals would get undone if the law refuses to know it place. Investor should be properly licensed if you conduct 3 or more deal yearly That's a no brains.
Dodd-Frank was touted as ending the risks of "too big to fail" banks needing to be bailed out. The dirty little secret is that the Dodd-Frank Act achieves this through a bail-in. Most people believe that their money in a bank is FDIC insured, but Title II of Dodd-Frank gives the FDIC powers to liquidate, including unsecured creditors. Under this law depositors to a bank are considered unsecured creditors. For better or worse, people should know this, and be careful where they deposit funds.
Oh Matt, that's two different matters, insured deposits and liquidation which is handled by FDIC, any issues arises ireef you don't set up the accounts to the max limits to be insured, just use more than one bank. FDIC has had powers to liquidate since it was established, or the Comptroller of Currency for National Banks.
As Jerry W. pointed out, the DF Act and SAFE Act are still not known in the legal community and even worse, grossly misunderstood by lay persons, including the majority of Congress, I'll bet not one Congressman can explain why we have that regulatory structure much less how it operates.
So, we have politics, Congress can slash and burn all they like, but we still have the Senate
We also have stand alone State Laws now with predatory dealing and lending, that is a very broad scope and could take in anything that falls out of the DF Act. For example, not qualifying a buyer in some rent to own, take it back, rinse and repeat scam.
I totally agree, this engine needs a tune up, but not scrapped. The issue is is that Congress is inept and can't tune it up, I'm sure here are a few Senators that do know how to turn the screws.
While I guess it could happened (stranger things have) don't hold your breath. :)
Bill, the FDIC has 70 billion dollars covering over 6 trillion in deposits.
With both the Dodd Frank Act and the 2005 Bankruptcy Act, derivative claims have prioity over all other claimssecured and unsecured, insured and uninsured.
I'm really not against this, because having the government insure deposits causes people to blindy turn over monies to any bank with an FDIC sign on the door. This has allowed banks to take high risks without their customers questioning anything.
I might not understand Dodd-Frank all that well, but I'm all for anything that makes owner financing easier and more readily available so long as that's what it actually does. I'm also for anything that makes landlords safer.
The gov't was pushing "home ownership for everyone" since Clinton started doing it in the 90s. Bush continued it. When the gov't backs banks and requires them to do things that don't pencil out, it was really started and caused by the gov't. The taxpayers got hosed. Small banks were hosed. Dodd / Frank should be terminated.
@Mindy Jensen I'm with @Ned Carey The direct impact on me and other small investors is not so much the bank regulations of DF, but the after thought of adding in all seller financing to the mix. Requiring seller financed buyers to be qualified by a licensed mortgage broker and that they "must be qualified" flies against what is the basic premise of seller financing. If the buyer was qualified then they could get a bank mortgage, and wouldn't need seller financing. DF ignores the small time buyer who has blemished credit and Federally prohibits them from owning a house. The authors Dodd and Frank wanted to reign in banks, but ended up hurting the buyers at the bottom of the scale that can't qualify for a bank mortgage. It effectively reduces the buyer pool, and is legislating who can buy a house and who cannot.
Here's a real life example for you. I had a house for sale and got an inquiry from "Bob" (not his real name) who wanted to buy my house. Bob is a disabled Navy veteran, who had a divorce, foreclosure and bankruptcy. After servicing his country for many years and sustaining a life long injury, Mr. Dodd and Mr. Frank legislated that Bob can't buy a house. Bob was being evicted from the family home by the foreclosing bank. Bob was unable to work because of his disability, and lost his ex-wife's income with the divorce. Before the foreclosure Bob's ex had already moved out and one day when Bob was at one of his many doctor's appointments, the bank representative came to the house changed the locks and locked Bob out of his own house before the Sheriff Sale. Trusting soul that Bob was, he never locked his doors. And since his ex took most (read nearly all) of the furniture, there wasn't much furniture in the house and the bank representative ASSUMED (we all know what happens when you ASSUME) that the house was abandoned. Bob was able to get some assistance and get the bank rep to come back and give him the keys to his own house. Yes, it still was his home, since it was before the Sheriff Sale. When I met Bob it was in this period between getting locked out of his house and the Sheriff Sale. The inevitable was that Bob was soon to be permanently locked out of the house after the Sheriff Sale and he didn't have a place to live and would be homeless.
I had a house. Bob needed a house. I let him move in and he eventually got his life back together qualified for a mortgage and bought that house. Dodd Frank puts Navy Veterans out on the street and makes them homeless. Real estate investors can put them in houses, if not encumbered by Federal law.
Posters here are doing 24 seller financed loans a year? I am sure there are bank branches that do not do 24 loan originations in a year. I've only done a handful in my lifetime, and each was for seller financing purposes of our own property.
As a person who is not "predominantly engaged in activities that are in the business of banking" the doesn't impact me (or any one else) directly. The only parts of it that impact me are real estate and mortgage related. D-F explicitly via Section 1061 of D-F, , transfers "All consumer protection functions" of SAFE to the Bureau of Consumer Financial Protection (called the CFPB now).
SAFE, by the way, is the . Each state implements it's own SAFE implementation.
Appendix B to Part 1008 entitled details who is and is "Not Engaged in the Business of a Mortgage Loan Originator". In my case, this is the text that fits me under Appendix B to Part 1008:
(a) Not Engaged in the Business of a Mortgage Loan Originator. (2) An individual who acts as a loan originator in providing financing for the sale of a property owned by that individual, provided that such individual does not engage in such activity with habitualness.
In my state NC, the exemption is in as I pointed out in an earlier post. I can do up to 5 per year and am exempt from regulation. So for seller financing, I have no worries about any D-F compliance or SAFE Act compliance, from strictly a 'can I do it' perspective. I do understand (though I don't do or endorse the practice) wanting the repeal for people 'in the business' of financing, primarily, over real estate, since they can avoid the overhead of disclosures, teaser rates, reverse mortgages, and 'creative financing', etc., and make more money off of their borrowers.
It hurt many people who could not for various reasons obtain a loan. I was selling several houses a year on owner finance, these were properties under $40K.
After Dodd Frank I scaled back and do only 3 per year. The rest have to keep renting. Also made it where I was able to get a larger down, because there was demand for owner finance. Many banks do not want to loan on small loans, especially under $50K.. I understand that it takes the same amount of time to do a 200K deal as a 35K deal, but there is definitely a demand for these structures.
I would be willing to do more if regulations were eased, and the foreclosure process needs to be streamlined. This has not been a problem in the past, this year have 2 unfortunately.
