by Dianna Jackman, Sr. Escrow Officer Chicago Title Agency
There is a new sheriff in town and its name is the CFPB. Beginning January 10, 2014, the Consumer Financial Protection Bureau will now be in charge of policing the mortgage industry under the regulations of the Dodd-Frank rules. According to the new rules under regulation Z of the Truth and Lending Act, a seller can provide financing on a purchase and will not have to be considered a loan originator under the requirements of TILA as long as one of the two exceptions apply. The provisions that would exempt the seller from financing from the requirements of TILA are 12 CFR 1026.36.
The first exemption (a)(4) exempts the seller under the number of properties they have done seller financing on in a 12 month period. This number must be 3 or fewer. The seller could not have acted as a contractor for the buyer or property. The financing must be fully amortizing, the consumer has the ability to repay and the loan has proper rate and margin terms. It is best to follow the state guidelines here to determine caps. It is so important, now more than ever, to consult with a real estate attorney who is familiar with the state and federal guidelines when you are deciding to lend money.
The second exemption is similar to the first but it is for a one time transaction. An example of this would be people who have had their house on the market for months and have made the conscious decision to sell with carry back financing. You know this will be a onetime thing and you will not be serving as a contractor, and you have determined the buyer’s ability to pay.
Even though you do not plan on making a career out of lending, you still need to follow the rules and regulations. They are constantly changing and will for a while until the CFPB has had time to see how they will be applied and what their effectiveness is. Anything new comes with a lot of trial and error. Do not get caught in the middle of this “settling period” by not paying attention to these changes. You know how the government works. They put the rules and regulations in place and adjust as they go to get the process started. Now is the time to find that attorney partner and keep them close. There are many changes that come with the CFBP. It is their job to create change that will actually help the consumer, which is where some of the other regulatory agencies have failed.
If you are an investor who buys and fixes, then sells to consumers, this new agency will be affecting you as well. Gone will be the days of waiting on loan documents. The lenders are going to have a whole new set of rules and regs to follow in regard to disclosure and delivery of documents. This is also a great time if you have not already partnered up with a lender to start interviewing and getting that partner locked in. Title companies and lenders are notorious for blaming one another when 11th hour closings do not go as planned. Let’s take advantage of this time of change to collaborate with our experts who are known for following the rules and regulations; they will be your best partners. There will now be regulation in place that documents must be presented to the borrowers a minimum of three days prior to close (similar to that of the rescission periods in refinance transactions). Title companies must now be in compliance to work with the lenders on financing transactions. You may start to see your lenders refuse to work with certain escrow officers or companies altogether that are not in compliance to the lender’s and the CFPB regulation requirements.
2014 is going to be a year of change. Let’s embrace it and work together to make sure our industry continues to thrive.
Remember, Chicago Title is here to help with anything you need and just a phone call away!