Dodd Frank & Private Lending Question

[Slocomb Reed]

Hey BP Forum Readers,

Who can explain how the Dodd Frank regulations affect the way private money and hard money loans can be written for investment properties and owner-occupied properties? And do you know of a helpful resource for understanding this?

I've had a few  hard/private lenders tell me that they can't lend on owner-occupied properties. Whether they're single family or multi unit, whether it's a short term loan or a 30-year fixed rate loan, owner-occupied is apparently a no-go. Why is that? And does Dodd Frank regulate loans on non-owner occupied properties at all? I have a few specific examples that I'll share in response to your comments.

Thanks y'all!

[Don Konipol]

@Slocomb Reed, you can search numerous threads or Dodd Frank regulation, but what you will find can be summarized as follows

Dodd Frank Act, and administrative rulings by the Consumer Financial Protection Agency, are unbelievably numerous, hard to interpret, subject to subjective judgements, have harsh and draculon penalties for even small or inadvertent infractions, and cases are being pursued by trail attorneys both as individual cases and as part off class action.

So, a lender set up to do a huge volume of personal mortgage loans may find the risk acceptable, the enormous investment in compliance and personnel  and procedures a cost of doing business.

Private lenders do not have the time, money, staff or risk tolerance to be in this market.  For example, one of the rules is that a lender must verify that a borrower can 'afford' to make the payments on a loan.  But, no direction is given on how this is to be accomplished; i.e. there is no safe harbor that a lender can confidently say he complied with this regulation. It will be up to a judge or jury to decide on an individual basis.  This is only one regulation that puts a lender at risk.  

Since private/hard money lenders can make 12% + on investment property loans, without the compliance risks, what the incentive to try to navigate through the thousands of pages of regulations, rules and procedures involved with a consumer mortgage?  The risks are too great, the return too small.