DS News

62 COMPLIANCY: TO BE OR NOT TO BE? ere has been constant, and voluminous, discussion within the loan origination and servicing industry about SAFE Act compliance, since the legislation was enacted in 2008. Initially intended to require licensing and registration of loan originators, the legislation mandated lending be regulated at the state level. Much controversy has ensued since the passage of additional, and exponentially more restrictive, legislation contained in the Dodd- Frank Wall Street Reform and Consumer Protection Act in 2010. e Dodd-Frank Act contains hundreds of provisions, and paved the way for the creation of the Consumer Finance Protection Bureau (CFPB). Since 2010, the CFPB has issued rule upon rule upon rule regarding the manner in which mortgage lending is to be managed, serviced, transferred, originated and regulated. So much so, that many in the industry are concerned the net effect of this law has served to significantly reduce the volume of mortgage lending, and render an additional cost of servicing loans to a level that the average consumer cannot afford. e effect of such a scenario could have negative impact on the U.S. housing sector, as well as the economy overall. Some industry experts believe our legislators, and federal regulators, have no real interest in ensuring that all Americans have access to the free market system when it comes to financing their dream to own their home. To be sure, the intent of these regulations have merit, especially the regulations related to licensing, and the reasonable exercise of assuring an "ability-to-repay" standard within the lend- ing community. Unfortunately, the methods by which these regulations are measured are murky, at best. For those choosing to use an owner- finance model, to overcome the relative lack of lending approval existing in the current con- forming loan market, the regulations are even murkier. For an owner-financed loan modifica- tion, reset or land contract, the lender, among a myriad of other applicable, new regulations, must determine whether it must be a "licensed lender" in a given state, or merely utilize a licensed originator, plus determine that the con- sumer has a reasonable ability to repay. Given that there exists no precedence regarding the regulation of such actions under existing federal legislation, nor their statutory counterparts, it is difficult to measure the associated risk. ADVERTORIAL How individual states will handle the somewhat nebulous regulations remains to be seen. At least one state has attempted to weigh in on the matter, as it has been recently reported that the Colorado Department of Regulatory Agencies – Real Estate Division, in reaction to the Dodd-Frank Act, has issued a bulletin related to the removal of the seller- financing provision from the state's form Contract to Buy and Sell Real Estate, while acknowledging that seller financing is legal and permissible under Colorado statutes and federal law. Why? According to the Colorado Real Estate Division, "ese new federal requirements are extremely complicated, but do permit seller- financed residential real estate transactions, as long as certain requirements are followed. Due to the sweeping regulations that have been passed at the federal level, and the complex rules that have been promulgated since the passage of the Dodd-Frank Act, the Real Estate Commission removed the seller-financing provisions from the Contract to Buy and Sell Real Estate in 2013. Instead, section 4.7 of the contract now provides the following warning: WARNING: Unless the transaction is exempt, federal and state laws impose licensing, other requirements and restrictions on sellers and private financiers. Contract provisions on financing and financing documents, unless exempt, should be prepared by a licensed Colorado attorney or licensed mortgage loan originator. Brokers should not prepare or advise the parties on the specifics of financing, including whether or not a party is exempt from the law." e bottom line: e Colorado Real Estate Division believes Dodd-Frank is too complex and creates liability for both Realtors and the sellers. At our company, National Asset Advisors and National Asset Mortgage, we have established a hybrid approach, designed to incorporate compliant, owner-financed transactions that meet ability to repay guidelines, income-to-debt benchmarks and TILA criteria. We strive to ensure that our consumer customers can, with payment diligence and consistency, afford the homes they have contracted to purchase and take positive steps to improve their credit ratings. Owner- financed transactions, when administered responsibly, provide the opportunity to achieve the Great American Dream, home ownership, to a large population of people who might not have the ability to do so under conventional lending terms. It's a shame that the zeal undertaken by the government to regulate, even if for good cause, may have resulted in the type of over-regulation that could serve to kill an innovative, and time-tested, financing option.

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