The real estate investing community is abuzz right now with a bill that is winging it’s way into law. It lasted just 3 days at the House and passed with an overwhelming majority. It’s now (6/9/09) at the Senate where it’s also expected to pass.
The Bill, HR 1728, is called the Mortgage Lending and Anti-Predatory Lending Act. Sounds good, right? The problem is that in an effort to protect buyers from anything outside a very normal, middle of the road loan, they have actually taken away the ability for a huge segment of the market to ever own their own home. Plus, if you planned to make some money in real estate (and isn’t that the American way?), you’re going to have a much tougher time of it because the creative techniques are soon going to be against the law. That is if this passes.
In plain terms, the Bill will preclude any type of mortgage financing that isn’t plain vanilla, 30 year amortizing loans. You can still have some adjustable loans but they are going to be very restricted. Creative real estate investors buy and sell property using seller financing. They might have wrap mortgages (wrapping existing financing), seller carry-backs, second loans, partial amortization with balloons - you name it, these are the types of loans that get people into houses.
This Bill won’t allow any of these types of financing anymore. Over 1 million Americans have lost their homes to foreclosure. Their only way back into home ownership anytime soon would have been through seller financing. And now the government says the willing buyer and the willing seller can’t do a deal.
There is one more even more ominous provision in the Bill. It’s Title IX and it allows the government to take any multi-family property that is in default or RISK (as they define risk) of default. Take it. Away from you. Even if you never missed a payment. And they’re going to turn it into low income housing. Meanwhile, they grabbed your asset and trashed your credit.
But as bad as all that is, it’s inevitable that this or something just as bad will eventually get passed. That’s because the government is seeing tax money flying out the door. Businesses are going virtual. They are outsourcing. Working from home. The workplace and business world has dramatically changed. We’re in the Information Age now and there is nothing a government, who depends on geographic boundaries, is more afraid of.
There is a grass roots letter writing campaign going on against HR 1728, largely pushed by the guys who sell programs that teach you how to buy no money down deals. I hope they win. But if they do, it’ll be a short lived victory.
When it comes to taxes and tax law, we’re in for a very bumpy ride.
And that’s where the opportunity always is.
June 9th, 2009 at 8:13 pm
I got a couple of questions on why I made the statement that the intent for taking the at risk multi-units away was to turn them into low income housing.
Reading Bills is just like researching tax law, you can’t look at just one thing and figure it’s the gospel. In this case, take a look at the committee reports that accompany the Bill. It’s very clear that is the intention.
Is this the Bill that will be passed? Of course not. This will get changed through the Senate Finance Committee and probably yet again in the Senate. And then there will be meetings between key leaders in the House and in the Senate to come up with a final version.
And then it could again get changed before the President signs it. I used to do a lot of fact checking and resource material writing for the Wall Street Journal real estate section. I will never forget one time that I had a copy of a Bill that had been approved by the House and the Senate. I knew the President had already agreed to sign it. So I wrote my piece and went to bed. I never went back to check if that was indeed exactly what he had signed.
It wasn’t. There had been a last minute change. I was flooded with emails from reporters wondering where on earth I had gotten my information.
And the issue was I hadn’t read the committee report along with the Bill. You can’t just take one without the other.
I learned my lesson then. Read EVERYTHING. And realize that nothing is final, even the Bill isn’t final until it comes down to implementation.
I got an email from a highly placed attorney friend of mine. He isn’t as worried about this as I am. He says that the Bill will have teeth and it’s going to pass, but the implementation won’t be as strong. He says it’s going to fizzle out. Well, we’ll see. Hope so.
June 21st, 2009 at 10:05 pm
Hello Diane,
I’ve spent some time just this weekend trying to parse out the HR 1728 amendment from Nydia Velazquez. I can see where the language is a bit vague and could possibly imply that HUD would have too much control over an investor’s multiple unit property. I own 8 properties in Nashville — duplexes, triplexes and a quad. This is almost the sole source of income for me and my family. I am nervous to say the least.
I have read Nydia’s comments here,
http://velazquez.house.gov/newsroom/2009/pr-5-7-09-predatory-lending-reforms.html
Her reasoning does seem well intentioned regarding tenant rights. If there was a guarantee that HUD or another gov. agency would be checked somehow before coming after one of my properties, I’d say fine, no big deal. How can I pursue this? Too late?
I am on average 70/30 LTV with one late payment out of 10 notes across 8 years. My vacancy rate is next to 0% and I have never been close to not being able to make all my payments. Am I at risk? What can I do to paint a more solid picture regarding my financial picture? I obviously would never want to be considered “at risk”, however, I don’t have the cash to simply get out of any debt service right now.
Thanks for your help and work on this issue –
Sincerely,
Andy, Nashville
June 23rd, 2009 at 8:10 pm
Andy, no one can say for sure until the bill passes and then is implemented. My initial thought is that you would be fine, BUT one of the discussions in the House was allowing the govt to take a property if the general area was in decline.
So, one particular building is fine - it’s rented up, payments are current, everything is good. But because there are a lot of other foreclosures and declining value, they may want to take it as a precautionary measure.
I know a lot of other sites are really concentrating on the seller financing issues (ie…there won’t be any, at least like we’re used to doing), but this is the provision that scares me. I wonder if it’s being slipped in because there is a concern at the govt level that the commercial real estate market decline is going to be the second wave to the hit the economy, and much, much bigger.