The Federal Reserve, which received sweeping new authority under the Obama regulatory re-authorization, wants to effectively eliminate seller-held (a.k.a. purchase money) mortgages. It will do this by enacting a rule for the Dodd-Frank Act prohibiting property sellers from taking back a mortgage unless the buyer essentially can qualify for conventional financing!
What’s more, Ma and Pa Homeowner, who create 95% of seller-held mortgages, won’t be able to qualify buyers under the same underwriting standards that banks are required to perform, and therefore the cash flow notes won’t be created.
If this is enacted it also will remove access to housing for millions of Americans, because seller “financing” is the only way people who can’t qualify for conventional loans can buy a house.
Moreover, it would allow a buyer a three year right of rescission (they can cancel the sale) if the seller did not properly qualify them. The right of rescission also applies to anyone who buys the note.
For additional information regarding the proposed rule please visit: http://www.gpo.gov/fdsys/pkg/FR-2011-05-11/pdf/2011-9766.pdf – This is a link to the Proposed Rule
http://www.federalreserve.gov/newsevents/press/bcreg/20110419a.htm – Original Press Release from the Federal Reserve Board for Governors