Private Seller Financing and Dodd Frank Regulations
Article by: by Emily Dressler 12.12.13
The Dodd Frank Wall Street Reform and Consumer Protection Act was initially passed in 2010 in response to the mortgage crisis and the late-2000s recession. This Act has brought significant changes to financial regulations, and with new regulations taking effect after January10, 2014, will continue to bring significant changes to many aspects of the mortgage industry. One of the major complaints about the Dodd Frank regulations is the lack of clarity, especially regarding private seller financing and mortgages.
The new regulations appear under the Loan Originator Compensation Requirements under the Truth in Lending act that was issued in January 2013. These new rules pertain to ability-to-repay and qualified mortgage standards. For further references, the complete Truth-in-Lending act can be read here.
Mortgages are complex financial transactions with lasting effects. Whether consumers are using a bank, mortgage broker, or an individual, they should be aware of all the complexities surrounding their mortgage.
To briefly review the concept of private seller home financing, it is when a private seller transfers the title to their property and accepts a mortgage from another individual for a substantial part of the sale price rather than receiving all cash on the sale.
Private seller financing has long been thought to be beneficial because buyers who cannot qualify for traditional or institutional mortgages are still able to acquire title using seller financing. While owner-financed homes only make up a small portion of real estate transactions, they do play a large role in hard-hit areas, like Ohio, Florida, and Michigan. They are used often by people with low credit scores who cannot get loans from banks or mortgage lenders.
Private seller financers will be affected under the new Dodd-Frank regulations, as exclusions or exemptions will apply to some seller-financers under the new regulations. For example, a natural person selling only one residential property a year will not be categorized as a loan originator, which means that person is exempt from the new rules.
Read more about the Private Seller Financing and Dodd Frank Regulations at Scottsdale Real Estate site.