Texas Safe Act / Federal Safe Act
The Federal Safe Act requires
all mortgage loan originators to be licensed in each state. This encompassed owner finace transactions by definition,
not by intent. As a result of the backlash, the federal government agreed to allow owner financing without being
licensed, provided your state has owner finance laws on the books. Texas did but to further clarify it, the Texas Safe
Act was passed. This established several exemptions that allowed for limited use of owner finaning without the
need to be a licensed Residential Mortgage Loan Originator. You were allowed to do 5 in a 12 month period without a
license. On number 6, you need a license. Another exemption is your personal residence. Other exemptions
exist but do not apply to the typical transaction. See "Texas to Continue Seller Financing" link below.
The Dodd-Frank Act amends the Safe Act (and with
it, the Texas Safe Act). This legislation is targeted at banking and a host of other financial activities but also
specifically addresses owner financing where the Federal Safe Act did not. Among the changes taking place in the Dodd-Frank
Act are: 1) change from five transactions allowed in 12 month period to three, 2) no balloon allowed
unless you are licensed (if not licensed, loan must be fully amortized, straight-term loan), 3) interest rate must not adjust
in first 5 years of loan, 4) must qualify the borrower's ability to repay the loan. No provisions were given as to what
"quailfied" is. However, it is our opinion that you should qualify to an FHA income standard if your intent
is to have the buyer refinance at a later date.
If you want to do balloons
but do not want to get licensed, then you need to hire a RMLO (Residential Mortgage Loan Originator) to originate your loan
for you. Prime does not offer origination services but we can offer a referral (no referral fee is made by Prime) if
you need it. Call for more information.
Other laws apply to real estate transactions and lending and may
apply in your transaction but the Acts above are the recent changes as they relate to Owner Financing.