Dodd-Frank Financing Changes Explained

With a few changes being made to Dodd-Frank financing, seller financing is set to change. Yet investors have little or nothing to worry about.

Known as the Dodd-Frank Wall Street Reform and Consumer Protection Act, this bill was signed by Obama on January 10, 2014.

Consisting of almost nine hundred pages, it seeks to address the shortcoming of the financial industry. In particular, it modified mortgage lending practices to protect borrowers too.

Here’s what you need to know to remain in compliance if you’re involved in seller financing or mortgage loans:

For starters, this new law does not apply to commercial deals but to only homebuyers who want to occupy a home.

Now, there are three categories labeled Category 1, Category 2 and Category 3.

The first (Category 1) pertains to those individuals, trusts or estates that sell only one property a year to a single owner-occupant buyer. If you fall into this category, then only balloon payments are allowed, no need for proof of payment is necessary and the note must be fixed for no more than five years. You can adjust to a maximum of 2 points per year. The cap for the note is no more that 6 points than the original rate too.

As for Category 2, this is for those individuals, estates or trusts who sell to no more than 3 owner-occupant buyers per yer. In this case, balloon payment are allowed but the proof of the ability to pay is necessary too. The limits set the note as in Category 1 remains the same. However, you are allowed to carry out only 3 transactions without becoming of hiring a mortgage loan originator.

Finally, for Category 3, this pertains to all those who make more than 3 transactions of this type a year. Also, a MLO status or the hiring of such an officer is necessary too. Apart from this, all the other rules as set in Category 2 will have to be followed as well.