All Forum Posts by: Terry Lewis

bureau

Hi Joshua,

Seller Financing is driven now by The Dodd Frank Act, DFA and it's creation of the Consumer Finance Protection Buerau, CFPB to enforce the DFA. Imagine going down a seller financing road and you are the seller. You will come to your first fork in the road and you will need to decide if you are selling the home and seller financing to a consumer or investor. The DFA defines a consumer as an owner occupant personally and or family members. You can go to the CFPB web site consumerfinance.gov for the complete definition. The easiest way to answer this question is, is the buyer and investor to hold as a rental for income and investment. Anything else is going to be consumer. You need to have this answer in writing from the buyer at the inception of the negotiations so you have proof you are not violating the DFA. If you are selling to an investor you are free to make your deal subject to all the other guidelines of your state for loan brokerage, Etc. 

If you are going down the fork in the road that is the consumer you need to follow the DFA. There are some exemptions but the law forces you as the seller to hire a Mortgage Loan Originator MLO to underwrite the loan specifically for the borrowers ability to repay, ATR. Again this is a very simple answer and the CFPB web site is the best place to go for answers. 

Because it took 6 years to roll out the rules and guidelines of the DFA there is a lot of misinformation on the internet and BP. 

Terry Lewis 

Seller

Hi Joshua,

Seller Financing is driven now by The Dodd Frank Act, DFA and it's creation of the Consumer Finance Protection Buerau, CFPB to enforce the DFA. Imagine going down a seller financing road and you are the seller. You will come to your first fork in the road and you will need to decide if you are selling the home and seller financing to a consumer or investor. The DFA defines a consumer as an owner occupant personally and or family members. You can go to the CFPB web site consumerfinance.gov for the complete definition. The easiest way to answer this question is, is the buyer and investor to hold as a rental for income and investment. Anything else is going to be consumer. You need to have this answer in writing from the buyer at the inception of the negotiations so you have proof you are not violating the DFA. If you are selling to an investor you are free to make your deal subject to all the other guidelines of your state for loan brokerage, Etc. 

If you are going down the fork in the road that is the consumer you need to follow the DFA. There are some exemptions but the law forces you as the seller to hire a Mortgage Loan Originator MLO to underwrite the loan specifically for the borrowers ability to repay, ATR. Again this is a very simple answer and the CFPB web site is the best place to go for answers. 

Because it took 6 years to roll out the rules and guidelines of the DFA there is a lot of misinformation on the internet and BP. 

Terry Lewis 

Seller Finance Consultants, Inc

Hi Dean,

Historically 10%-15% increase in price over the market is doable. The main thing on a wrap is to totally disclose to all parties the acceleration clause (read the note) in the underlying loan and determine up front who is responsible to refinance or pay off that loan should it be accelerated. If this is your only seller carry in 12 months and the buyer is a consumer you are exempt. You should hire a MLO to create a collateral file and underwrite the loan so it has full value should you want to sell it or borrow against it. All the regulations are in consumerfinance.gov.

Terry Lewis

Bill, It's unbelievable the mis-information that is being disseminated here. Where does it say anywhere in Dodd Frank that there is no balloon until half the mortgage is paid down? Half the country can't qualify for a mortgage right now under the strict guidelines of the lenders. It's because banks now get their spread off the discount window of the fed and buy treasuries with it at no risk, the securitization market is gone except Fannie, Freddie, and banks need to reserve a percentage of the non conforming loans the originate among other reasons. This is all another conversation. 

What DFA says is that a homeowner, not a builder or dealer can sell one house per 12 months forward or backward pretty much as they wish. Yes even with a balloon. After one home sale up to 3 per 12 months there are restrictions full amortization and no balloons. A homeowner can hire a MLO to sign off on the loan if the MLO follows the rules of the DFA all spelled out in the consumerfinance.gov web site. There can be a balloon, there can be an adjustable loan and there can be a prepayment penalty. The ATR is something that the MLO has to follow and is a significant part of the DFA. If there is a Balloon in 5 years the MLO must council the buyer that the loan has to be repaid or refinanced and have a reasonable assurance that the buyer has a plan to pay the balloon. This can be achieved thru credit repair, inheritance of assets, amortization, reverse mortgage, sale, or any other method the buyer is fit to accomplish. The way for the MLO to prove this is in the collateral file that is created on behalf of the lender seller. This collateral file is also gives the note or mortgage value so it may be sold or borrowed against. The DFA professionalizes seller financing brings it out of the closet as a valid sales technique for selling homes and creates uniform guidelines for us all to follow to protect everyone involved. My observation with just this thread is that there are about 8 different opinions and until people start reading the law that is at consumerfinance.gov in a series of the final rules this valid and excellent method of real estate will continue to be chaos.

Terry Lewis

Hi Dion,

Forgive me for not being clear or concise. The rules are in the CFPB website and they are straight from the horses mouth so to speak. Rather than try to rewrite the regulation  it is better to refer to the actual site. 

Raul's question was "That said, Dodd-Frank and the "no balloon" clause is causing some concern. Did I understand the regulation correctly? A Seller that finances the purchase of one of their rental properties to a buyer occupant can't require a full payment in 3, 5, 7 yrs?"

The answer is yes he can if he hires a Mortgage loan originator to bless/underwrite the loan and sign off on it. That puts the responsibility for the ATR, the balloon, and the high cost loan on the MLO. 

The information on interest rates and high costs loans is good and found in the HOEPA final rule. I didn't read it as a question Mr. Pedrozo had. Hopefully I am helping here.

Terry

Hi,

Every one is wrong! The rules are on the CFPB website consumer finance.gov

page 26 section 3.4

You can hire a MLO that knows what he's doing to write a balloon and do a loan up to prime plus 6.5%

http://files.consumerfinance.gov/f/201503_cfpb_201…

Terry Lewis

I'm all for the repeal of Dodd Frank and even parsing out bad provisions of it. All that said it's not going to happen for several reasons. Time would be better spent learning how to work with seller financing within the DFA as we have done and create some really good compliant notes that are salable to mom and pop Ira's for interest income that they can use to retire off of. Seller financing is an untapped resource that no one is using to fire the banks and take back our neighborhoods with local neighbors helping neighbors.

Terry Lewis

Make sure it is valid and pay it. Life is full of experiences good and bad.

Hi Tom,

You should get your financing lined up before you retire. It will be difficult to get cash out from institutional lenders.

Terry