Posted from an article in the Wall Street Journal

Jessica Holzer reports from Washington:

Most people write a check to a lender or mortgage servicer when they want to pay their mortgage. A tiny minority of borrowers, however, make their monthly payment directly to the person who sold them their home. A "seller carry-back," in industry jargon, may be an unusual way to finance a home sale, but it accounts for enough transactions that the National Association of Realtors lobbied to kill a provision in the financial-overhaul bill pending in Congress that would have put curbs on the practice.

The lobbying, for the most part, paid off.

The House-passed version of the bill would have required people to register as mortgage originators if, more than once over a three-year period, they finance a sale of property they own.  The provision was written into the bill out of concern that unscrupulous businesses would try to get around new tough lending rules by financing real estate transactions themselves.

But this week, Sen. Christopher Dodd (D., Conn.) and Rep. Barney Frank (D., Mass.), who are the lead House and Senate negotiators working to finish the financial-overhaul legislation, agreed to relax the limitation on seller financing to three properties in one year.

While short of the full exclusion that Realtors were looking for, the new language makes it much easier for seller-financers to avoid registering as mortgage originators.

"We applaud Mr. Frank for a proposing a way to allow sound real estate transactions to come to closing," Lucien Salvant, NAR managing director of public affairs, said in an email.

Seller carry-backs, always rare, typically become more popular in tight credit markets when property owners may have difficulty finding a buyer who has access to a conventional loan. Instead of receiving the purchase price in a lump sum, the payments are strung out to the home seller over years.

According to a survey of their members by the California Association of Realtors, seller financing accounted for 1.3% of sales in that state last year, up from just 0.4% of sales in 2007. In 2008, they accounted for 1% of California home sales, the group says.

Mr. Salvant argued that seller financing often makes sense for real estate transactions in rural areas where mortgage credit is scarce.

The change must still be agreed to formally by the Senate lawmakers on the conference committee finalizing the financial-overhaul bill.