Changing usury

guest commentary by Kevin King, a Realtor and owner/broker of Fort Smith-based King Realty Group

On the ballot in November, voters will see three amendments to the Arkansas Constitution appropriately named “Issue 1, 2 and 3.”

I am a Real Estate Broker and investor in Fort Smith Arkansas, and have lived in Fort Smith for almost my entire life. I want to share my perspective of the benefits of Issue 2.

As a real estate broker one of the biggest challenges in today’s real estate market is  the availability of financing. Getting a loan to purchase a home has become extremely difficult. The financial crisis of 2008 and the failure of many national banks and mortgage lenders has created a backlash of financial reform. Mortgage lenders are requiring more money down, more conservative appraisals and better credit scores, all of which make it much harder for a buyer to obtain financing for a home purchase.

I believe everyone and I mean everyone should have the opportunity to own a home. If you have a stable job, pay your bills, and have the ability to take care of a house, you should have the opportunity  to purchase a home.

I am not saying the taxpayers should back those riskier loans — quite to the contrary.

The solution to helping buyers who do not fit the mold and not put taxpayer dollars at risk is why I think you and I should support Issue 2. Issue 2 allows individuals like myself and other investors to charge a higher interest rate to incent lending from private individuals to buyers who do not fit the normal mortgage lending guidelines.

The state of Arkansas has a usury law which limits the interest rate an owner can lend  to a buyer at a rate not to exceed 5 percentage points above the “Federal Reserve Primary Credit Rate” which in today’s terms limits the interest rate to between 5.25% and 5.5%.

The “rub of the issue” is when an investor purchases a property with the intent to fix-up and resale to a prospective buyer, many of those potential buyers are unable to obtain traditional financing. Currently, an investor will pay around 7% interest on a commercial short term loan which means, according to Arkansas’ usury law, I would only be able to finance to a buyer at 5.25% interest while I pay the bank 7%. Therefore losing 1.75% or financing at a lower rate. Losing 1.75% does not make any economic sense. Which means if it doesn’t make money and if it doesn’t make money an investor won’t do it.

To summarize  and to put this in perspective, a potential buyer is going to have to stay a renter longer and their pride of ownership will be different and their spending to improve the property will be different and their savings habits will be different and your neighborhood will be different.

I say these things because I live in the real everyday world of local real estate. People who own the property they live in take better care of the property which in turn makes our neighborhoods a better place to live. I encourage you to support the proposed changes to the Arkansas Constitution.

A copy of the amendments on the ballot can be read in their entirety at this page on the Arkansas Secretary of State’s website.