In what could become one of the most important developments for home buyers and sellers this year, mortgage lenders here and elsewhere are quietly beginning to offer below-market financing for certain types of home sales.
Two local savings and loan associations, Perpetual Federal and American Federal, notified real estate brokers and borrowers this week that they are willing to provide loan assumptions at below-market rates for buyers of resale homes they originally financed.
Perpetual, this area's largest home lender, said it will allow purchasers to assume existing mortgages at rates ranging from 9 1/2 to 13 1/2 percent, a discount of 3 1/2 to 7 1/2 points from its current 17 percent rate for new mortgages.
Perpetual's letter to brokes said that on homes it previously financed at 4 to 6.99 percent rates, it would permitassumptions of loans now being paid off at 10 percent to 11.99 percent, buyers would pay 13 1/2 percent. All purchasers would also be required to paya 1 percent cash assumption fee at settlement.
American Federal said it would set rates on assumptions according to various factors, including size of down payment and the financial capacity of the new buyers. William Sinclair, president of the lending institution, said the top rate charged buyers assuming existing loans financed by American Federal would probably be 12 percent.
The actions of the two S&Ls are highly significant because they represent an unusual relaxation of the lending community's decade-old policy of raising rates on mortgage assumptions to the prevailing rates.
That policy, designed to protect lenders against inflation, has acted as a barrier for years to assumptions of low-rate mortgages. Both institutions announced, in effect, that they will allow qualified buyers to take over loans on perhaps thousands of area homes -- ondiscount terms.
They also announced that they would permit sellers to assist buyers with secondary loans secured by their homes -- another relaxation of past policy designed to facilitate home sales in thecurrent slow market.
Perpetual said that assumption applications received before May 30, and with closings scheduled no later than June 30, would be eligible for thespecial rates. Continuation of the program beyond May 30 is possible, a Perpetual mortgage official said, but the institution would have to assess theimpact of the program. American Federal also set a May 30 deadline forapplications.
The two S&L's policy changes came at the same time that a similar, but broader, series of actions was under way in St. Louis. There, pressed by the real estate industry, mortgage lenders have begun permitting assumptions of previously non-assumable loans, in orderto get rid of a huge backlog of unsold houses clogging the market.
Prospective buyers in St. Louis have shied away from houses because they couldn't qualify for -- or simply didn't want -- the 16 and 17 percent rates being charged by Missouri lenders.
The Metropolitan Board or Realtorsin St. Louis surveyed 860 of the 6,500 houses on the market there recently and found that the average rate on non-assumable, conventional loans held by local lenders was 7.98 percent. The board also found that some of the larger S&6s and banks had as much as $60 million tied up in loans on unsold houses.
"It suddenly struck us," said Les Glickman, president of the Realtor group, "that lenders, consumers and brokers all had a mutual problem that pointed us in the same direction.
"If lenders would simply see the advantages to themselves of raising the rates on existing (non-assumable) mortgages, and allow them to be assumed, we could all get through this crazy 1980real estate market. The lenders would get what they need most -- a 5 to 6 point increase in the yield on the loans in their portfolios -- without having to loan out a dime in new money. And buyers, sellers and brokers would get the break they need to move houses." a
St. Louis" "solution," barely two weeks old, already is working, Glickman said, with institutions that hold thousands of non-assumable loans informally pledging their willingness to negotiate rates and waive their full due-on-sale privileges.
No other U.S. city has seen the sort of concerted campaign, backed by institutional research, that has occurred in St. Louis.
But the breakthrough in the District, as well as the growing interest in the concept reported by realty brokers and lenders in Virginia, Illinois, New Jersey, Louisiana, California and New York, point to "discount assumptions" as one of the hottest ideasin sight in 1980's cold housing market. a