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Broker Promising a 3% Mortgage in a 7% World

About 22% of U.S. mortgages are assumable from a seller to a buyer – largely federal ones, such as FHA loans – and a broker advertises that option to attract customers.

NEW YORK – Roam, a real-estate company that launched Wednesday, says it can popularize an obscure workaround to help today’s homebuyers get their hands on mortgages with lower rates.

“Assumable loans” allow sellers to transfer their own mortgage loans to buyers along with the house.

Loan assumptions have not gained much traction recently, even though rates are up. Approximately 22% of active mortgages are part of the government programs that have assumption features, according to Black Knight, including loans extended through Federal Housing Administration programs (FHA loans).

Few consumers know about the option, and fewer still follow through with it.

Raunaq Singh, Roam’s founder and chief executive officer, says his company will find and advertise home listings attached to attractive assumable mortgages. Roam is initially launching in Georgia, Arizona, Colorado, Texas and Florida.

Under the company’s advertised business model, it plans to help with the paperwork and other bureaucratic hurdles of an assumable loan, which means working with the seller’s mortgage company on behalf of the buyer and seller.

Lenders sometimes drag their feet processing assumptions because they earn only a few hundred dollars for processing them – often not enough to cover the cost and far less than they make originating new mortgages, according to Ted Tozer, nonresident fellow at the Urban Institute’s Housing Finance Policy Center. For loan assumptions to become popular, lenders will need to be allowed to earn more on them, Tozer says.

“There’s not much you can do with that if the lenders aren’t going to be efficiently processing assumptions,” Tozer says.

Source: Wall Street Journal (09/13/23) Eisen, Ben

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