Without a doubt, real estate investors who carry-back a mortgage for homebuyers are going to be impacted in a big way by Dodd-Frank laws. On Jan, 10th, 2014, investors who offer owner financing won’t be able to sell more than 3 residential properties each year unless they are a licensed mortgage loan originator. Moreover, financing must be amortized and balloon payments are prohibited.
Seller financing
Fortunately, Dodd-Frank only comes into play when the buyer intends to live in the property. Additionally, no new laws impact seller financed transactions for commercial property, multi-family, or vacant land and nor should they since they are commercial properties for the most part. Dodd-Frank was made to protect the average consumer not regulate commercial real estate.
In summary, it is just another instance of the government over-regulating and ultimately slowing a big part of the economy, which is housing. There will be less building and residential development with these laws and ultimately less competition for homebuilders. Lennar, Toll Brothers, KB Homes, Ryland, Hovnanian may benefit more since the smaller investor is not able to compete with an advantage of a balloon payment unless they want to get a mortgage originator’s license.
Here’s a quick overview of some of the restrictions Dodd-Frank places on private seller financing of residential property planned to become law on January 10, 2014:
Homes built by the seller are not eligible.
No balloon payments are allowed. The loan needs to be fully amortized.
The seller is required to confirm the home buyer has the real means to repay the loan.
The loan needs to have a fixed interest rate for no less than five years.
For additional information and understanding you should call the Consumer Financial Protection Bureau at (202) 435-7700 or go to their website (www.consumerfinance.gov/)