House Bill 1728: Keep your hands off MY risk!
For those of you out there who invest in real estate on your own, LOOK OUT for HB 1728. While it’s titled “Mortgage Reform and Anti-Predatory Lending Act”, it also places a significant road block for the individual real estate investor. I’m not going to dissect the Bill (www. http://www.govtrack.us/congress/billtext.xpd?bill=h111-1728), nor do I disagree with the Bill’s stated goal of ending predatory lending, but the RE Rebel in me can’t accept a key provision: the Bill limits how often I personally can provide owner-based wrap-around financing (if you don’t know what that is, Google it) to a buyer of one of my own properties. According to the Bill’s provisions, I can only make a wrap-around mortgage once every 3 years. WHAT??
Don’t get me wrong-I’m as ticked off as anybody at the mortgage scams that brought us into this current crisis. But this Bill goes too far. The problems didn’t come from individual investors taking calculated risks, it came from companies creating enormous portfolios of high-risk loans, then other companies buying up those portfolios. At every step the risk got bigger and the originator of the loan passed that risk along to the new portfolio buyer. Much of the pressure to build these portfolios came from commissioned sales people who carried no personal risk, but collected high commissions and then headed for the hills (or the Club Med, or the Porsche dealership)
HB 1728 won’t stop this. But it does stop me, as a rebellious investor who takes risks with my own cash, from making calculated business decisions. If I help a buyer to get into a property using a wrap-around, and then that buyer defaults, it’s MY credit rating and MY money that suffer. That’s my call, not the US Congress’.
It’s bad for buyers too! It cuts off another source of financing for people who have less than perfect credit and/or who can’t find a 20% down payment. For those of you reading this in other parts of the country…in the California Bay Area a 20% down payment on a CONDO is about $100K. How many of us have that kind of money just stashed away? An owner-financed wrap around mortgage from a seller like me can help good people gain the American dream.
Sheesh! It’s like throwing the baby out with the bathwater! The Bill has already passed the House and now sits in the US Senate-let’s keep our fingers crossed that the Senate manages to keep the good stuff in and toss this provision out the window!
Yours in Rebellion,
Larry
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Once again, the politicians are missing the mark. I don't see that they are telling the lenders what their lending guidelines must be. Yes, they may be setting standards for a lender's reserves, but even at that, Federal funds have been offered (and taken) by many of these entities. If my decision to float a loan, in any form, to help sell a property that i own, why should the federal government care? For that matter, why should they be involved at all? They're not giong to offer me any money if it turns out to be a bad business decision on my part. It really sounds too much like something that was added on behalf of a special interest...but who or what???
ReplyDeleteI agree with LP-there's always a bail-out for the big boys, but on the everyman level all we get is rules. It's almost impossible for somebody like me to save up a 20% down payment in the bay area (even though my wife and I have good jobs and no kids), so some kind of alternative owner-financing will be critical for us. At the same time, we weigh our own risk-we DIDN'T take out a huge mortgage and second mortgage four years ago to buy something with no money down, because we knew that everything had to be wonderful for a long time in order for us to keep affording the payments.
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