An Insider’s Guide To The Safe Act

There are probably few pieces of legislation in history that are more flawed and harder to understand than the Safe Act. And what was designed to safeguard average Americans from the abuse of the mortgage industry has actually turned into a costly, inefficient mess that will no doubt result in nothing more than removing a vast amount of available credit from the market at the worst possible time.

First a quick history of how we got to this point. You probably remember all those ads a few years ago for 110% mortgages with no credit check? Or mortgage rates from 1%? Well, those didn’t exactly work out. In fact, as you probably already know, it resulted in the largest residential mortgage meltdown in U.S. history. Today, something like 25% of Americans are upside down in their mortgages. And around 10% of them are already in some form of default. Many of these borrowers are blaming the mortgage companies for leading them blindly into such a financial mess. Whether you buy onto that argument or not, it wasn’t hard for Washington to see this as a great political opportunity to show their extreme concern for the people (of course, not enough concern to actually do anything to fix those 25% of Americans who are upside down in their mortgages). So they came up with a terrific public relations concept: The Safe Act. This piece of legislation is supposed to protect all of us from the evil mortgage companies that seek only to enslave us into bad loans.

Here’s how it works. To enter into a mortgage, the individual doing the lending has to be licensed under the Safe Act. And they have to abide by certain covenants and restrictions on what they can and cannot lend on and how much they can charge. Somehow, this is going to stop mortgage abuse (kind of like how prohibition stopped drinking). The reality is that it causes all lenders to go through a pain-in-the-neck licensing process, pay about $1,000 in fees, and be subject to perpetual CPE classes.

Great, who cares? Well, if you sell mobile homes and carry the paper, then you better care, because you fall under the Act. While nobody knows for certain yet whether or not “rent-to-own” programs are included, the standard old sell and carry paper sure is. So you need to immediately contact your local Manufactured Housing Association and find out how the process works in your state. You do not, however, need to attend any expensive event to tell you about the Safe Act. Opportunists have popped up everywhere. You can get all the information you need for free from your state association.

Should you panic? No. First of all, the Act is so new, that many states have been able to buy time for it to actually take effect, so you may not already even be in default. Secondly, there will no doubt be a ton of lawsuits and case law to come, and the Act will probably morph into all kinds of things in the days ahead. But you need to know what’s going on, and if you need to begin the process to get licensed. Does everyone have to? No. If you sell no homes, or just rent homes, or sell homes for cash, then the Safe Act should have no effect on you. It only pertains to creating mortgages.

And there may be some help on the way. There is a huge push from the single-family housing industry to amend the Safe Act to not include any lender who is creating a mortgage on his own property. Apparently the geniuses in Washington forgot that there is a sizable market of individuals who buy stick-built housing and then sell and carry paper on them. And this credit market is among the few still making loans. So restricting the moms and pops of the world from creating home mortgages is a pretty stupid idea if the goal is to help keep home ownership within the grasp of many Americans. If the Safe Act was amended to exclude this group, and only focus on true mortgage companies who create loans on things they don’t own, then just about all mobile home park owners would be excluded from the law.

So don’t lose sleep over the Safe Act. Get the facts from your state manufactured housing association. Stay calm. Evaluate your position. Then act appropriately. If you only have a home or two to sell, maybe you should just sell them for cash and be done with it. You do have options.

And when it comes election time, you might remind your local candidate of how much you appreciate his hard work on the Safe Act – and kick him safely out of office!

1 Comment

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  By Marc Faulkner, March 5, 2010 @ 6:28 pm

  Thanks for writing about this issue. We need to all make our voices heard on this issue as it will certainly impact our industry. Visit the governments site and let them hear from you.
  Follow these simple steps:

  Logon to http://www.regulations.gov
  You will see two white boxes for searching
  On the left box labeled “Document Type”, pull the menu down and select “proposed rules”
  On the right box labeled “Enter keyword or ID”, enter “safe mortgage”. Then, press search
  Locate the blue search result “FR-5271-P-01 Safe Mortgage Licensing Act: HUD Responsibilities Under ….” To read the rules, click on this title. You will be taken to another page. You will see “views”. You can click on PDF file or another symbol which will show you the rule document online.
  On the right of the screen, click on “submit comment”
  Complete the form providing required information and your comments and then submit

  “What’s at stake?
  -Abolition of property rights
  -More government control
  -Inability to sell a second home with seller finance
  -Loss of ability to buy a property and resell w/spread if it’s
  not a primary residence.
  -Loss of ability to resell with seller financing, a note in
  your portfolio which defaults.
  -Non-performing notes will have to be bought at huge
  losses to banks because investors will have to
  sell the properties outright rather than getting them
  performing and holding them for income.
  -Sub-prime borrowers that I hold notes for are improving
  their credit scores while building equity. These cus-
  tomers will be forced back into rentals.
  -This will directly and indirectly affect everybody who
  works in real estate. Please get the word out!”

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