…did Congress accidentally kill Owner Financing?…
… from one of our favorite mortgage voices, David Reed, CD Reed Mortgage Bankers
Yes. At least for all practical purposes they did on May 31. Here’s what happened:
In 2008 Congress passed the Housing and Economic Recovery Act (HERA) of which a section addressed national standards for mortgage loan officers be they bankers or mortgage brokers.
As you read this, every single mortgage loan officer was to have taken 20 hours of Continuing Education in mortgage lending, passed a National Mortgage Test, had their personas run through the FBI database for crooks, fingerprinted, credit checks ran and in states that chose to do so, also pass a State-mandated mortgage exam (Texas included) and do so by May 31, 2010.
So now you know that the loan officer your clients are speaking with isn’t on the lam from some bogus check fraud scheme, has gone to some schooling and paid over $1,000 in fees, tests and checks for the privilege of being a loan officer.
These national standards apply to every loan officer but in the heat of the moment in passing HERA Congress mistakenly (I think, anyway) made it illegal for an owner to finance a piece of property they own.
"House For Sale! Owner Will Finance!" is now verboten. This applies to both first and second mortgages so even the so-called "Seller Carry-backs" or "Seller Seconds" are off-limits.
The HERA bill applies to anyone who provides mortgage advice, takes a loan application, quotes rates, calculates monthly payments or pretty much anything a loan officer does on a daily basis then that person must be licensed.
While that doesn’t necessarily kill owner financing it makes it practically impossible. If you or someone you know owns real estate and they offer to finance it for you or one of your buyers the owner must then also take the required 20 hours National Mortgage Test, FBI search, fingerprinting, credit check, and State exams before doing anything.
Trust me, I’ve done all that and it ain’t a whole lot of fun.
Congress needs to fix this. Some times people need owner financing when they can’t get conventional financing. I’m thinking of someone that’s got perfect credit, 20 percent down but can’t get approved because they haven’t filed two years worth of tax returns on their new business.
Or a young couple just starting out on their careers and they haven’t saved up a whole lot of money for a down payment or their income is hard to document. I’m thinking waiters and waitresses here or anyone that has tip income.
Several part time jobs? Seasonal work?
Or someone has five percent down but can’t qualify because they’re first timers and can’t get mortgage insurance. A seller could carry back a second mortgage and get the deal approved but no longer under the magic of HERA.
There is a way around this and it’s by the owner contacting a licensed loan officer to take the loan, disclose, document and so on but I’m not quite sure how all that will play out. I for one won’t get involved in something like that until I was positive it was all legitimate.
If you’ve got a listing out there that is offering Owner Financing or you’ve got some buyers with special needs then you might need to revisit your situation.
The baby got thrown out with the bathwater.
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Entry filed under: Smart Real Estate.