Why the Dodd Frank Law is Bad and What You Can Do About it

Did you miss the webinar on Dodd Frank last night?

Here’ is a summary.

Our good friend Vena Jones Cox from OREIA shared her story.

While she had read all about Dodd Frank and knew about the issues, it did not hit home with her until a few months ago.  She buys and sells houses, often with a Contract for Deed, which is a form of Seller Financing.  She had a cute little house that she was offering for sale on Contract for Deed.  Because of the location and the price range she was expecting to sell it to a Real Estate Investor who would buy it for a rental.  She had bought it creatively and had a small note on it that included a balloon payment in 5 years.

She received a very good offer on the home from an owner occupant buyer who loved the house and wanted to buy it.  She wanted to put $2000 down and finance the rest at 7% and have a 5 year balloon.  Payments were going to be something like $271 a month and the buyer was going to fix it up as she lived in it and the buyer was going to save a ton, because rent for the house and others like it in the area would be around $600.   The offer came from a Realtor, Vena had nothing to do with the offer other than receiving it

Does this sound familiar, this could very easily be a house anywhere in most American Cities where homes are selling in the $30,000 to $50,000 range, typically to the real estate investor.  An area that needs more home owners purchasing them over the landlords.  A home buyer that would otherwise stay a tenant gets a home, a Realtor gets a commission and a Real Estate Investor saves another house in the community.

But it was not to be, Vena had to tell this home buyer NO.

First lets define what types of Seller Financing Dodd Frank affects.  Commercial transactions to a Commercial or Investor buyer who is not going to live in the home, are not affected.  So in our example above, Vena could have sold the home with those terms to a Real Estate Investor Buyer all day long and she probably did.  The investor if he could buy and pay $271 a month and rent it for $600,  after taxes and insurance was probably going to pocket a decent profit (or use it to pay down the loan).  Frank Dodd affects Consumers, people that are going to occupy the home they are purchasing.

Second, there are limits on how many consumer financed sales an entity can offer and be exempt from the law. Every state varies a bit, but it could be as few as 3 houses or as many as 5.  After you have reached your limit, Dodd Frank Kicks in.

So, right off the bat Vena had to say no because with Frank Dodd, there can be no Balloon, it has to be a fully amortizing loan.  So she could have still worked with this buyer and just not had a balloon payment right?  Except for if we remember, Vena had underlying debt that had a balloon payment and she wanted to her sale loan to pay off her purchase loan on time.

Next Vena had to explain to the Buyer that even if they could get around the whole Balloon deal, that because it was a consumer loan, that she would have to pay a licensed mortgage loan officer to review the loan and make sure all the many many many disclosures and documents were completed.  An because there are so few of these licensed people that will do the paperwork for this type of seller financed property, well the cost is steep, all of $1500 in fees.  And remember Vena was only going to get $2,000 cash up front.  So either the buyer would have to cough up another $1500 that she did not have to pay for this service, or Vena would have to come out of pocket as most of the $2,000 was paying the Realtor commision.

That means that complying with this aspect of Frank Dodd, could be cost prohibitive.

These are the types of deals we see across the country every day in our urban core cities that need home buyers, in our rural areas, where the towns are begging for home owners, in our areas where there are mobile home communities . . . places where deserving folks can’t get a loan to purchase their dream.  Why can’t they get financed?  Well it could be that they don’t have the credit to get the financing, but more often than not, they can’t get the financing because the value is just too low.

You see Banks can’t say, we will not finance in certain areas of the city, that is called Red Lining and it’s illegal.  However, they can get away with saying we will not do loans under a certain amount and that number is usually $50,000 and neatly lets them of the hook if the property is in a rural or urban area.  In the case of mobile homes, well they just will not finance something that can possibly roll away, so almost all Mobile Home resales are seller financed.

So Vena went to her local legislators office armed with her story to explain to him what happened and ask him to fix it.  Why?  Because Dodd Frank was hurting her community.  In that community and others like it, homes are either sitting vacant for lack of financing OR selling selling for much lower values to Real Estate Investors, exactly what the community leaders do not want.  The communities want more owner occupant home owners, but they are getting fewer, because the home owners can’t get the seller financing.


So enter a chance meeting – at the National REIA conference where Vena (and I ) met with Eddie Speed . . . a note guy that you might have heard a little bit about.  He and a few of his fellow note people had been dealing with this Seller Financing issue since the ink dried on Frank Dodd or Dodd Frank and had formed a Coalition . . . the Seller Finance Coalition.  They had raised some initial money to hire a lobby group to start calling on our Legislators in Washington.

As the Coalition and the Lobby Group met with Legislators, 15 so far, they found out something very interesting.  First most of the legislators in Washington did not vote for Dodd Frank, it was before their time.  Over half of the 15 didn’t even know that there was such a thing as seller financing.  And all of them agreed that something needed to be done.

The Coalition and the Lobby Group are working with a legislator to draft an amendment that would eliminate all transactions under $150,000 from the rule.  So if you not selling to a consumer, it would not affect the transaction, we have that already.  But if you were selling to a consumer, and the transaction falls below $150,000, you would not be affected.  They are working on getting this law ready to present and once the do they need OUR HELP!!!

They need all of us to take our own story of why the law needs to be changed, at least our little part of it and we are working right now to get our Grass Roots, Real Estate Investor and Landlord Army ready to go.

So what can you do right now?

1.  Go to http://www.sellerfinancecoalition.org/ and click on the Join Now button, and join.  It does not cost anything to sign up to be a part of the organization and at minimum get updated on what you will need to say to your legislators.  If however you do a lot in seller financing and want to do more at this step, pick one of the donate buttons and donate to the cause.

2.  Go to their Facebook Page and Like the Page, Leave a Comment of Support and then use the invite tool to invite everyone of your friends who would have an interest, let’s blow up their page.

3.  Go to their Twitter Page, Click the Follow Button, Tweet about them using the key tags ( @SFCdotORG, #SellerFinance #ContractForDeed, #SFdotORG, #SellerFinanceCoalition) and retweet some of their posts to help spread the word.

4.  Now for the hard part, make a list of names and contact of the legislators in your area.  This can include local officials in your city for areas that are hardest hit.  Your State Legislators and the Federal Officials.  The Coalition is making a strong push for the folks on the following two lists:

The Senate Banking Committee  <—- Link to members names and contacts – so in the Kansas City area, we need to hit up Jerry Moran, so get his contact information and be ready to go when we get the official message from the SFC.

senate banking committee

and the House Financial Services Committee, so here in Kansas and Missouri we need to contact Blaine Luetkemeyer, MissouriAnn Wagner, MissouriWm. Lacy Clay, Missouri, and  Former Mayor Emanuel Cleaver, Missouri

house financial services committe