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A 3% Mortgage Rate in a 7% World? This Startup Does It

26 points by jkuria 3y ago

Bostonian 3y ago
https://archive.ph/4JclX https://archive.ph/4JclX subtitle: "Loan assumptions, which let a home buyer essentially take over a seller’s mortgage, are hard to find and hard to pull off" 'There are millions of outstanding mortgages with a 3% interest rate. A new startup says it can help today’s home buyers get their hands on them. Mortgage rates are now above 7%, leaps and bounds above the 3% they grazed two years ago. Buyers and sellers alike are giving up, sucking demand and supply out of the housing market. And things are expected to stay that way, with the Federal Reserve signaling plans to keep rates high for the foreseeable future. Roam, a real-estate company set to launch Wednesday, is betting that it can popularize an obscure workaround. “Assumable loans” allow sellers to transfer their own mortgage loans to the buyer alongside the house. n theory, the idea sounds great, at least for discouraged house hunters who can inherit a lower-rate loan. Sellers, in turn, might fetch higher prices for their houses. But Roam’s vision faces an uphill battle. Loan assumptions haven’t gained much traction recently, even though rates are up. Many lenders are cool to the idea because for them it would mean more work for less money.'
- smileysteve 3y ago
  > with the Federal Reserve signaling plans to keep rates high for the foreseeable future. And the mean before the 2001/2008 recessions being much higher for the 30 years before.
- oceanplexian 3y ago
  I don't think assumption is a common thing. I've done 5-6 mortgages in the last few years and they all have a clause that say they are non-assumable spelled out very obviously on the loan agreement.
dave4420 3y ago
What are they going to do when interest rates fall again?
- syndicatedjelly 3y ago
  Do the same thing that everyone else does when rates change in the opposite direction they expect - screw over the people they lent money to, then go bankrupt.
adamredwoods 3y ago
>> Roam says it will recommend lenders to provide additional financing. It wouldn’t specify which lenders it will work with. Roam will collect a fee from the buyer that equals 1% of the purchase price. Yes, you'd have two loans. It's an interesting idea, and one we floated by our mortgage lender. Our mortgage lender did not seem to like it, because I don't think they make as much. This makes one think, are there better ways for mortgages available that are not considered because the mortgage company does not make as much?
throwaway154 3y ago
Is this pay more now for a lower interest rate? To compare it to bonds, imagining I can sell my own bonds: To raise the same amount of money issuing a bond with a 3% coupon now vs. issuing one with a 7% coupon now, I'd have to issue more of the 3% coupon bond. This seems an obscure bet on perceptions of house prices, house purchase heuristics and mentality, and a lot of imagination. I can imagine why lenders are 'cool to the idea'. Please correct me if the above understanding's incorrect.
- bko 3y ago
  There's money on the table. Basically a 3% mortgage is worth maybe 90% of what is due. When you sell, you basically give them back $100 and the lender is very happy (they just made $10!). The reverse is true when rates have historically been higher. Prepayments are path dependent. So now you essentially have this $10 surplus by not trading in your loan worth 90%. How the buyer and seller split that is up to them. For instance the buyer could say I want an extra $10 on top of what you would have paid without the transfer or the reverse. But realistically the buyer would pay a little more for a net lower payment. Win-win. It's very clever. The big downside is having to get a second lien to cover the remaining amount which would likely be higher rate because it'll be a second lien. And the hassle of having two mortgages.
syndicatedjelly 3y ago
Are assumable mortgage loans legal in the United States? Additionally, let's say an individual chooses to use Roam to sell their home and transfer the mortgage. In a normal market, the interest rate is unique to the buyer, but in the Roam market, the interest rate is now on sale as part of the house deal. This will increase demand for the house, and the seller can ask for more money. Presumably, the amount more that they'll ask for will erase some of the savings that the buyer will realize from the lower interest rate. The mortgage payment for a 500k house at 7% is comparable to a 750k house at 3%, but the required down payment for the latter is much higher.
- toomuchtodo 3y ago
  Assumable mortgages are legal. You can even transfer property encumbered by a non assumable mortgage without the investor or servicer being able to accelerate or call the note under certain circumstances (for example, transfers between family members). https://lawandsteinllp.com/2023/04/garn-st-germain-act/ https://lawandsteinllp.com/2023/04/garn-st-germain-act/ (Garn–St Germain Act)
  - singleshot_ 3y ago
    Most mortgages (it depends) have a clause obligating the mortgagor to live in the home, regardless of the person from whom payments originate.
    - toomuchtodo 3y ago
      Show me a US mortgage with this clause and I'll eat crow. I have never seen this in having done many subject to real estate transactions, where I'm deeded the property but the mortgage remains in someone else's name. Indeed, you can incur wrath (as this is fraud) if you apply to originate a mortgage stating it's your primary residence and then you turn around and rent it out as an investment property (you must move into the property within 60 days of closing, and after a year you can convert from owner occupied to investment property, on a primary residence note), but there is no mortgage clause to my knowledge that requires you to remain in the home yourself as long as the note exists.
scottmas 3y ago
I don’t get why the seller just wouldn’t do seller financing. Not that hard to structure so that they lose nothing if the buyer defaults (assuming a reasonably large down payment). I guess the only down side is not being able to get any equity out of the sale apart from the down payment. But the down payment along with the new income source probably should be plenty in most cases to be able to afford to purchase your next house.
- deleted 3y ago
  [deleted]
DoubleDerper 3y ago
Little known fact: VA mortgages are assumable for other veterans. A US veteran that purchased in the low-interest rate environment has a significant advantage as a seller in today's market.
PhilCarlton 3y ago
MiiX Financial (www.MiiX.Financial) has a 30 Year 3.5% Fixed "R.O.C." product coming available (Residential Ownership Certificate). It's essentially an updated version of the antiquated 30 year mortgage developed to meet / match / compete / comply with todays standards. There is certainly some inventiveness and creativity flowing in this sector and should be watched closely for a breakout product/solution...
- PhilCarlton 3y ago
  BundleMyLife (www.BundleMyLife.com) also has the same (similar) program as MiiX Financial and it looks like they may either be affiliated or has a licensing agreement. BML VIDEO: https://www.youtube.com/watch?v=Lib7HZZfAQw https://www.youtube.com/watch?v=Lib7HZZfAQw Both have the same 3.5% - 30 Year - Fixed Home Finance product where you can amortize regular monthly expenses like utilities, health and car insurance, etc. into the 30 year home financing.
PhilCarlton 3y ago
Following up on the jkuria post about the WSJ article regarding ROAM and the 3% Assumable Mortgage as compared to the 3.5% MiiX R.O.C. residential & personal financing. The release of the MiiX R.O.C. and ROAM products only magnify the urgent and desperate need for reform in the mortgage, housing, insurance and personal finance markets. Hat's-Off to these two co's for stepping forward!
usmc01 3y ago
Not sure this model will work...because buyers are generally not interested in paying 1% of the purchase price for a service their real estate agent is able to provide for free. There is another search tool that's much more effective in connecting buyers with directly to listings with assumable loans that cost just a couple bucks per month. It's called AssumeList (https://assumelist.com https://assumelist.com) - and allows buyers and agents to search for homes that have assumable loans and then pursue those homes for nothing...no 1% fee. AssumeList is brand new and hasn't officially launched yet. I've heard it will launch in the DC, VA, MD market first and then expact accross the county in the months ahead.

26 points by jkuria 3y ago

https://archive.ph/4JclX https://archive.ph/4JclX subtitle: "Loan assumptions, which let a home buyer essentially take over a seller’s mortgage, are hard to find and hard to pull off" 'There are millions of outstanding mortgages with a 3% interest rate. A new startup says it can help today’s home buyers get their hands on them. Mortgage rates are now above 7%, leaps and bounds above the 3% they grazed two years ago. Buyers and sellers alike are giving up, sucking demand and supply out of the housing market. And things are expected to stay that way, with the Federal Reserve signaling plans to keep rates high for the foreseeable future. Roam, a real-estate company set to launch Wednesday, is betting that it can popularize an obscure workaround. “Assumable loans” allow sellers to transfer their own mortgage loans to the buyer alongside the house. n theory, the idea sounds great, at least for discouraged house hunters who can inherit a lower-rate loan. Sellers, in turn, might fetch higher prices for their houses. But Roam’s vision faces an uphill battle. Loan assumptions haven’t gained much traction recently, even though rates are up. Many lenders are cool to the idea because for them it would mean more work for less money.'

smileysteve 3y ago
> with the Federal Reserve signaling plans to keep rates high for the foreseeable future. And the mean before the 2001/2008 recessions being much higher for the 30 years before.
oceanplexian 3y ago
I don't think assumption is a common thing. I've done 5-6 mortgages in the last few years and they all have a clause that say they are non-assumable spelled out very obviously on the loan agreement.

dave4420 3y ago

What are they going to do when interest rates fall again?

syndicatedjelly 3y ago
Do the same thing that everyone else does when rates change in the opposite direction they expect - screw over the people they lent money to, then go bankrupt.

adamredwoods 3y ago

>> Roam says it will recommend lenders to provide additional financing. It wouldn’t specify which lenders it will work with. Roam will collect a fee from the buyer that equals 1% of the purchase price. Yes, you'd have two loans. It's an interesting idea, and one we floated by our mortgage lender. Our mortgage lender did not seem to like it, because I don't think they make as much. This makes one think, are there better ways for mortgages available that are not considered because the mortgage company does not make as much?

throwaway154 3y ago

Is this pay more now for a lower interest rate? To compare it to bonds, imagining I can sell my own bonds: To raise the same amount of money issuing a bond with a 3% coupon now vs. issuing one with a 7% coupon now, I'd have to issue more of the 3% coupon bond. This seems an obscure bet on perceptions of house prices, house purchase heuristics and mentality, and a lot of imagination. I can imagine why lenders are 'cool to the idea'. Please correct me if the above understanding's incorrect.

bko 3y ago
There's money on the table. Basically a 3% mortgage is worth maybe 90% of what is due. When you sell, you basically give them back $100 and the lender is very happy (they just made $10!). The reverse is true when rates have historically been higher. Prepayments are path dependent. So now you essentially have this $10 surplus by not trading in your loan worth 90%. How the buyer and seller split that is up to them. For instance the buyer could say I want an extra $10 on top of what you would have paid without the transfer or the reverse. But realistically the buyer would pay a little more for a net lower payment. Win-win. It's very clever. The big downside is having to get a second lien to cover the remaining amount which would likely be higher rate because it'll be a second lien. And the hassle of having two mortgages.

syndicatedjelly 3y ago

Are assumable mortgage loans legal in the United States? Additionally, let's say an individual chooses to use Roam to sell their home and transfer the mortgage. In a normal market, the interest rate is unique to the buyer, but in the Roam market, the interest rate is now on sale as part of the house deal. This will increase demand for the house, and the seller can ask for more money. Presumably, the amount more that they'll ask for will erase some of the savings that the buyer will realize from the lower interest rate. The mortgage payment for a 500k house at 7% is comparable to a 750k house at 3%, but the required down payment for the latter is much higher.

toomuchtodo 3y ago
Assumable mortgages are legal. You can even transfer property encumbered by a non assumable mortgage without the investor or servicer being able to accelerate or call the note under certain circumstances (for example, transfers between family members). https://lawandsteinllp.com/2023/04/garn-st-germain-act/ https://lawandsteinllp.com/2023/04/garn-st-germain-act/ (Garn–St Germain Act)
- singleshot_ 3y ago
  Most mortgages (it depends) have a clause obligating the mortgagor to live in the home, regardless of the person from whom payments originate.
  - toomuchtodo 3y ago
    Show me a US mortgage with this clause and I'll eat crow. I have never seen this in having done many subject to real estate transactions, where I'm deeded the property but the mortgage remains in someone else's name. Indeed, you can incur wrath (as this is fraud) if you apply to originate a mortgage stating it's your primary residence and then you turn around and rent it out as an investment property (you must move into the property within 60 days of closing, and after a year you can convert from owner occupied to investment property, on a primary residence note), but there is no mortgage clause to my knowledge that requires you to remain in the home yourself as long as the note exists.

scottmas 3y ago

I don’t get why the seller just wouldn’t do seller financing. Not that hard to structure so that they lose nothing if the buyer defaults (assuming a reasonably large down payment). I guess the only down side is not being able to get any equity out of the sale apart from the down payment. But the down payment along with the new income source probably should be plenty in most cases to be able to afford to purchase your next house.

deleted 3y ago
[deleted]

DoubleDerper 3y ago

Little known fact: VA mortgages are assumable for other veterans. A US veteran that purchased in the low-interest rate environment has a significant advantage as a seller in today's market.

PhilCarlton 3y ago

MiiX Financial (www.MiiX.Financial) has a 30 Year 3.5% Fixed "R.O.C." product coming available (Residential Ownership Certificate). It's essentially an updated version of the antiquated 30 year mortgage developed to meet / match / compete / comply with todays standards. There is certainly some inventiveness and creativity flowing in this sector and should be watched closely for a breakout product/solution...

PhilCarlton 3y ago
BundleMyLife (www.BundleMyLife.com) also has the same (similar) program as MiiX Financial and it looks like they may either be affiliated or has a licensing agreement. BML VIDEO: https://www.youtube.com/watch?v=Lib7HZZfAQw https://www.youtube.com/watch?v=Lib7HZZfAQw Both have the same 3.5% - 30 Year - Fixed Home Finance product where you can amortize regular monthly expenses like utilities, health and car insurance, etc. into the 30 year home financing.

PhilCarlton 3y ago

Following up on the jkuria post about the WSJ article regarding ROAM and the 3% Assumable Mortgage as compared to the 3.5% MiiX R.O.C. residential & personal financing. The release of the MiiX R.O.C. and ROAM products only magnify the urgent and desperate need for reform in the mortgage, housing, insurance and personal finance markets. Hat's-Off to these two co's for stepping forward!

usmc01 3y ago

Not sure this model will work...because buyers are generally not interested in paying 1% of the purchase price for a service their real estate agent is able to provide for free. There is another search tool that's much more effective in connecting buyers with directly to listings with assumable loans that cost just a couple bucks per month. It's called AssumeList (https://assumelist.com https://assumelist.com) - and allows buyers and agents to search for homes that have assumable loans and then pursue those homes for nothing...no 1% fee. AssumeList is brand new and hasn't officially launched yet. I've heard it will launch in the DC, VA, MD market first and then expact accross the county in the months ahead.