On July 30, 2008, President Bush signed into law the Secure and Fair Enforcement (SAFE) Mortgage Licensing Act of 2008 as part of the Housing and Economic Recovery Act. The act required that each state enact legislation in accordance with the SAFE Act’s nationwide standards for mortgage loan originators. Accordingly, significant changes were made to the mortgage banking laws in Wis. Stat. chapter 224 to comply with the federal mandate. The revisions to Wis. Stat. chapter 224 make several changes to the statutes regulating mortgage loan originators, mortgage brokers and mortgage bankers, effective January 1, 2010.

Many key definitions were modified:

• "Residential mortgage loan" is now defined in Wis. Stat. § 224.71(14) as "any loan primarily for personal, family, or household use that is secured by a lien, mortgage, or equivalent security interest, on a dwelling or residential real property located in this state."
• "Dwelling" is defined in Wis. Stat 224.71(1f) by reference to the definition found in the federal Truth in Lending Act: "a residential structure or mobile home which contains one to four family housing units, or individual units of condominiums or cooperatives."
• "Residential real property" is now defined in Wis. Stat. § 224.71(15) as "real property on which a dwelling is constructed or intended to be constructed."
• With certain exceptions, a "mortgage loan originator" is defined in Wis. Stat. § 224.71(6)(a) as an individual who, for compensation or gain, takes a residential mortgage loan application or offers or negotiates the terms of a residential mortgage loan.

Due to the changes in the scope of regulation and the definitions applicable to mortgage bankers, mortgage brokers and mortgage loan originators, members have expressed concern about how the new legislation impacts their transactions. The WRA posed questions concerning seller financing transactions to the Division of Banking Administrator at the Wisconsin Department of Financial Institutions and came away with the following insights:

Question: Under the revised statutory definitions, does the owner/seller of a 1-4 family dwelling providing seller financing need a mortgage loan originator license if the transaction involves another investor who will not be owner-occupying the property? 

Answer: Based on the use of the term "investor" the answer would be no.

DFI also indicated that a "residential mortgage loan" includes a purchase mortgage, a second mortgage and a land contract with regard to a "dwelling" or "residential real property" as defined above. It may include a mortgage loan on a mixed-use property with both retail space and dwelling units, depending upon the facts — it has to be a loan "primarily for personal, family or household use."

When a seller provides seller financing to the purchaser of a 1-4 family property, and the financing is "primarily for personal, family or household use," for instance, the buyer will owner occupy, then the seller may need a mortgage loan originator license and so may the agents negotiating the transaction. There is an exception, however, for homeowners selling their own homes. If the seller financing is for business or investment purposes, then no license is needed for seller or agent.

REALTOR^® practice tip: A real estate agent negotiating a real estate transaction (1) for the sale of a 1-4 family residential property or vacant land where a dwelling will be built; (2) where the seller will provide a land contract, a second mortgage or a purchase money mortgage loan; and (3) the financing provided to the buyer is for a personal, family or household purpose, would need to be licensed as a mortgage loan originator. Sellers wanting to provide this financing should contact their attorneys to see if this is a viable option. 

See the DFI website at www.wdfi.org for additional information.

Debbi Conrad is Senior Attorney and Director of Legal Affairs for the WRA.