One of the goals of the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010 was to set up a standard for creating qualified mortgages. The 848 page legislation was enacted in the hopes of prohibiting loan originators from steering any consumer toward a residential mortgage loan that the consumer would not be able to repay or that has predatory characteristics in order to prevent any recurrence of the recent housing bubble. Under the Dodd-Frank Act, a mortgage lender who follows the guidelines of this Act is presumed to have satisfied the ability-to-repay requirements and receives some protection from liability when it originates a qualified mortgage.
The Dodd Frank Act has come up with 9 qualified mortgage criteria that it feels should prevent loans from defaulting. However, most are critical as to whether or not this legislation will actually prevent anything. Here’s what the Government Accountability Office (GAO) recently had to say about the impact of the Dodd Frank Act and it’s ability to prevent another housing crisis:
GAO examined five of the nine qualified mortgage criteria specified in the Dodd- Frank Act for which sufficient data were available and generally found that, for each year from 2001 through 2010, most mortgages would likely have met the individual criteria. The five criteria address payment of loan principal, length of the mortgage term, scheduled lump-sum payments, documentation of borrower resources, and borrower debt burden… However, the impact of the full set of qualified mortgage criteria is uncertain, partly because data limitations make analysis of the other four criteria difficult and partly because federal agencies could establish different criteria as they develop final regulations. http://www.gao.gov/products/GAO-11-656
So the majority of the provisions would have done nothing to prevent the housing crisis, and the remaining 4 criteria lacks sufficient evidence to prove that this Act would have any impact whatsoever. However, one thing that is for certain is that this legislation will make it much more difficult for the average person to obtain a loan.
The Dodd Frank Act and Owner Financing
Despite there being very few complaints from consumers regarding owner financing, the Dodd Frank Act (as did the SAFE Act) does impact how real estate investors are able to perform selling a house with owner financing. The good news is that the real estate investor won’t really notice any difference in the way they perform their business if they are already following the rules of the SAFE Act. The Title Companies and Licensed Residential Mortgage Loan Originators will have more work to do.
Does the Dodd Frank Act Abolish Owner Financing?
The combination of the SAFE Act and the Dodd Frank Act prohibit real estate investors from taking applications, negotiating terms, and creating a new note unless they are licensed. If the real estate investor is not licensed, then they simply must utilize the services of individuals who are licensed.
While a little more expensive and a little more complicated, selling a house with owner financing is still a viable option under the enactment of this legislation.
The Dodd Frank Act does establish criteria on what terms cannot be put in place for a loan, such as negative amortization schedules, interest only payments, or terms for longer than 30 years. Also, total points and fees cannot exceed 3% of the loan amount. Finally, if you are going to implement a prepayment penalty, then it cannot be for greater than 3 years nor can the penalty exceed 3% of the amount paid off. Also, if you wish to include a prepayment penalty in a loan package, you must also offer a similar loan package that does not have a prepayment penalty. In this situation, for example, you may offer a higher interest rate instead of a prepayment penalty and give the buyer a choice.
Is Owner Financing a Viable Real Estate Strategy?
In fact, in today’s economy with the stringent lending policies of the banks, utilizing a real estate strategy of owner financing to sell a house may be the only way for people with little, no, or slightly negative equity to sell a house. Owner financing will prevent many of these people from having a short sale performed on them or, even worse, having to go through foreclosure.
Assignment of Mortgage Payments System
The assignment of mortgage payments system taught by Phill Grove is an educational system that teaches the real estate investor how to legally and profitably sell ‘unsellable’ homes to ‘unloanable’ buyers using a combination of proven real estate strategies, like subject-to, wholesaling, and owner financing. As part of the program, the assignment of mortgage payments system students will have access to a nationwide legal network that includes both attorneys as well as Licensed Residential Mortgage Loan Originators so the investor will be able to have a ‘one stop shop’ for having a professional legally handle all paperwork and negotiations with the buyer in compliance with the SAFE Act and the Dodd Frank Act.
For more information on the assignment of mortgage payments system, please visit www.REIMaverick.com.
About the Authors:
Phill Grove is the Founder and President of Love American Homes, Hippie Hollow Homes, LP of Austin, Texas as well as the creator of the Assignment of Mortgage Payments System (AMPS), which teaches students how to sell homes with owner financing. Phill Grove has participated in over 1,200 real estate transactions totaling more than $200,000,000 since 2003. Phill Grove is active in the Austin real estate clubs as a board member of the Austin Real Estate Investment Club (REICAustin) and the President of the Austin Real Estate Networking Club (Austin RENC) – the largest investment club in Central Texas.
Mark Torok is the founder of The Torok Law Firm, a firm representing real estate investors for asset protection and real estate matters, as well as representing a number of real estate lenders. He has been involved in real estate for over 30 years and has been instrumental in an estimated $750 million in real estate transactions, either as a primary investor, as an attorney representing a party to the investment, or as a closing agent. Today Mr. Torok specializes in owner finance and subject to transactions, and in creative ways to get the deal done. He is an active speaker throughout the United States and has presented seminars and boot camps and talks on real estate, asset protection and the laws of Texas, including lease options, contract for deed, the Texas S.A.F.E Act, the MARS Act, and the myths and truths about other gurus’ programs.