A Dodd-Frank Question

[Brittany P.]

Hi All,

Question for you pros, and maybe I'm thinking too deeply on this, but does Dodd-Frank (or its attendant regulations) set any restrictions on purchasing mortgage notes, or only on loan origination?  What about any impositions on contract-for-deed purchases/origination?  Much thanks to anyone who can weigh in with their expertise.

[Dan Deppen]

Dodd-Frank relates to originating mortgages. However, some states do require a license to purchase mortgage notes.

[Chris Seveney]

Quote from @Brittany P.:

Hi All,

Question for you pros, and maybe I'm thinking too deeply on this, but does Dodd-Frank (or its attendant regulations) set any restrictions on purchasing mortgage notes, or only on loan origination?  What about any impositions on contract-for-deed purchases/origination?  Much thanks to anyone who can weigh in with their expertise.

 There are numerous state and federal laws related to buying and selling mortgage notes as well as originating mortgages/contract for deeds etc.You have Dodd Frank as well as numerous other consumer protection laws that you have to deal with. 

[Don Konipol]

Quote from @Brittany P.:

Hi All,

Question for you pros, and maybe I'm thinking too deeply on this, but does Dodd-Frank (or its attendant regulations) set any restrictions on purchasing mortgage notes, or only on loan origination?  What about any impositions on contract-for-deed purchases/origination?  Much thanks to anyone who can weigh in with their expertise.

There are at minimum 52 regulatory authorities involved with residential mortgage origination and servicing (50 states + DC + Federal).  That’s a big reason I invest in commercial mortgages only 

[Marco Bario]

Quote from @Brittany P.:

Hi All,

Question for you pros, and maybe I'm thinking too deeply on this, but does Dodd-Frank (or its attendant regulations) set any restrictions on purchasing mortgage notes, or only on loan origination?  What about any impositions on contract-for-deed purchases/origination?  Much thanks to anyone who can weigh in with their expertise.

Not per se if purchasing existing paper, but the subsequent noteholder may face issues if requirements weren't met at origination. Contract for Deed origination is also subject to Dodd-Frank regulation. 

[Brittany P.]

Thanks, all.  Super helpful!

[Jamie Bateman]

As others have indicated, it is typically the state licensing/compliance that becomes the focus in buying notes/CFDs. In general (not legal advice), in most states you **should** be okay to purchase notes without a license (if the loan was properly originated). There are definitely exceptions to what i just said. GA, for example, requires a mortgage lender license. Whether or not the state actually enforces that in all situations is another question. Using a licensed loan servicer protects you in many cases, as well. 

Sometimes when modifying a loan, if you are increasing the P+I, that could be considered a refinance, requiring you to re-underwrite (due to Dodd-Frank's requirement to show the borrower's ability to repay). 

In general, the NMLS should be your compliance/regulation guide, as it compiles tons of state-level requirements. Overall, I would say not to let the compliance piece scare you away. 

[Brittany P.]

Quote from @Jamie Bateman:

As others have indicated, it is typically the state licensing/compliance that becomes the focus in buying notes/CFDs. In general (not legal advice), in most states you **should** be okay to purchase notes without a license (if the loan was properly originated). There are definitely exceptions to what i just said. GA, for example, requires a mortgage lender license. Whether or not the state actually enforces that in all situations is another question. Using a licensed loan servicer protects you in many cases, as well. 

Sometimes when modifying a loan, if you are increasing the P+I, that could be considered a refinance, requiring you to re-underwrite (due to Dodd-Frank's requirement to show the borrower's ability to repay). 

In general, the NMLS should be your compliance/regulation guide, as it compiles tons of state-level requirements. Overall, I would say not to let the compliance piece scare you away. 

Thanks, Jamie. Do you happen to know if the seller-financing piece of Frank-Dodd applies to originating CFDs? My understanding is that if you’re not licensed, you can’t originate more than 3 seller-finances/year, and you have to make sure buyer can repay, fully amortizing, and restrictions on ARM. Do all these requirements carry over to CFD origination? (Confirming in advance that I understand any reply from you isn’t legal advice.)

[Jamie Bateman]

Quote from @Brittany P.:

Quote from @Jamie Bateman:

As others have indicated, it is typically the state licensing/compliance that becomes the focus in buying notes/CFDs. In general (not legal advice), in most states you **should** be okay to purchase notes without a license (if the loan was properly originated). There are definitely exceptions to what i just said. GA, for example, requires a mortgage lender license. Whether or not the state actually enforces that in all situations is another question. Using a licensed loan servicer protects you in many cases, as well. 

Sometimes when modifying a loan, if you are increasing the P+I, that could be considered a refinance, requiring you to re-underwrite (due to Dodd-Frank's requirement to show the borrower's ability to repay). 

In general, the NMLS should be your compliance/regulation guide, as it compiles tons of state-level requirements. Overall, I would say not to let the compliance piece scare you away. 

Thanks, Jamie. Do you happen to know if the seller-financing piece of Frank-Dodd applies to originating CFDs? My understanding is that if you’re not licensed, you can’t originate more than 3 seller-finances/year, and you have to make sure buyer can repay, fully amortizing, and restrictions on ARM. Do all these requirements carry over to CFD origination? (Confirming in advance that I understand any reply from you isn’t legal advice.)

 See this recent CFPB opinion: https://www.consumerfinance.gov/about-us/newsroom/cfpb-takes...

[Brittany P.]

Thanks, Jamie. Super helpful.