A funny thing happened to me on the way to market…
Rates fell yesterday even though inflation numbers came in a bit higher than expected (largely due to higher energy prices). First, the bond market digested the inflation numbers and is realizing the inflation trend is clearly downward, despite yesterday’s numbers. In addition, a Fed member made comments implying that they are finally seeing the adverse effects of their rate increases down the road, and further implying that rate increases will likely pause. And finally, the European Central Bank announced they are likely done with rate increases.
Assumable Mortgages – How To Get A 3% Mortgage In A 7% World
A startup called Roam was all over the news yesterday because they just got startup funding. Roam’s founder says his new company will find and advertise home listings attached to attractive assumable mortgages… and I thought good gravy (again). This is actually a double good gravy news item, given all the airplay it got, and given how trivial it is.
First of all, they only got $1.25 million in funding in a VC world where tens of millions get doled out like mints. Secondly, assumable mortgages have been around forever, and they are called FHA, VA, and USDA Loans. Fannie Mae, Freddie Mac, and almost all Jumbo mortgages are NOT assumable.
So, all that Roam will do is perform title searches to find homes with FHA, VA, and USDA loans and try to entice those homeowners to sell their homes for a premium, I assume.
If a seller has a $500,000 FHA loan that is 4% under the market interest rate, that is effectively savings of about $20,000 per year. If you account for the mortgage insurance, the savings are $2,500 to $4,000 less, but the savings are still substantial overall.
So, depending on how you value the low-rate mortgage, a $600,000 home with a $500,000 mortgage at 3% could be worth $50,000 (or more) than the market would otherwise indicate – which may be a nice enticement to get someone to sell.
But Here’s The Kicker: Any agent could do what Roam does – and probably better.
Many title companies like Fidelity, for example, have excellent tools that allow agents or lenders to search entire regions for properties with assumable mortgages attached.
NOTE: If agents are in areas where they are prohibited from getting that data themselves for free, they can contact a lender like say…JVM Lending, as we can help them access that data in a compliant manner.
In addition, agents might also work with a predictive analytics company like SmartZip that uses all kinds of data points to effectively illuminate property owners in a particular area that are most likely to sell.
If agents combine SmartZip along with a well-honed pitch that explains how sellers with an assumable mortgage could capture a substantial premium, they might be on to a powerful combination for generating listings.
Even barring SmartZip though, agents could still do mass mailing or even email campaigns to homeowners with assumable mortgages.
In any case, I don’t think Roam will fall in a day, but I do think it will fall…
And I think clever agents will be the barbarians at the gate.
