If you're interested in buying a home but have stopped looking until mortgage rates come back down to 11 or 12 percent, you may be missing some extraordinary opportunities. And you may be in for a very long wait.
New national mortgage market statistics reveal that the stock of low-interest-rate, assumable home loans is huge -- far larger than pessimists in the realty market believe.
As of the last quarter of 1980, for example, there were outstanding in the United States $61 billion worth of assumable, fixed-payment FHA-VA mortgages carrying interest rates of between 7 percent and 11 percent.
That represents about 2.9 million loans with average remaining terms of 18 to 27 years. Every one of those mortgages is guaranteed assumable at its orginally written rate to home buyers who are qualified to step into the shoes of the current owners of the property.
The nation's stock of assumable, low-rate conventional (nongovernment-insured) mortgages is also far greater than many buyers and realty brokers imagine.
For instance, under the Federal National Mortgage Association's (Fannie Mae) "due-on-sale" policy, all conventional home loans that were in its portfolio prior to Nov. 10, 1980, are assumable at the original mortgage rate.
Fannie Mae is the nation's largest investor in residential mortgages, buying as many as one out of every 15 home loans originated by local financial institutions. It owned as of Nov. 10, $16.5 billion worth of loans carrying rates under 12 percent -- nearly a half million of them spread across the country. About 200,000 of Fannie Mae's conventional loans were in the under-9 1/2-percent category, and the bulk of them were actually in the 8-to-9 percent range.
Every one of these bargain-rate loans is certified assumable with no rate increase -- provided qualified buyers and sellers know that Fannie Mae owns the mortgage. That information should be readily obtainable from the local mortgage banker or thrift institution who "service" the loan for Fannie Mae by collecting monthly mortgage payments.
The stock of potentially assumable, lower-rate conventional loans is even bigger. When the U. S. League of Savings Associations surveyed its membership recently, it found that 70 percent of the $283 billion in fixed-payment home loans in the portfolio of respondents carried rates between 7 percent and 10 1/2 percent.
Most of those loans had remaining terms of 20 to 27 years. Most of them also included contractual language empowering the lender to "call" the loan -- demand immediate repayment of the full principal balance -- to prevent assumptions by new buyers at the original rate.
League officials confirm, however, that many savings and loan associations are offering "preferred-rate" arrangements on assumptions of their loans -- despite the "due-on-sale" language that permits them to ban assumptions outright.
Preferred-rate plans allow financially qualified buyers of resale homes to step into the shoes of current owners with a rate increase. The rate might go from 8 percent on the current loan to 12 percent for the new buyers of a house, but it's always several points below the prevailing market rate.
Commercial banks in numerous markets are offering similar plans. Cleveland's AmeriTrust Company is offering 16,000 homeowners who received their loans from the bank prior to 1979 (when rates were generally single-digit) the opportunity to pass on favorable financing to new buyers.
AmeriTrust will provide 12 1/2 percent mortgages to buyers of any of the 16,000 designated homes who make loan applications in the next three months. The 12 1/2 percent loans can be as large as the outstanding principal balances on the houses being purchased; financing beyond that will be at market rates.
On a house selling for $100,000 with a $65,000 existing loan at 9 1/2 percent, for example, the bank will offer new purchasers a $65,000 loan at 12 1/2 percent. Should the buyers need another $15,000 to $20,000 in financing to swing the purchase, the bank will loan it to them at whatever the prevailing rate for mortgages is in February or March.
AmeriTrust's motivation -- like that of S&Ls and banks in major cities around the United States -- is to replace low-yielding investments on its books with higher-yielding loans.
The net effect, though, is to open up potentially vast pools of affordable capital for housing that buyers, sellers and brokers wouldn't otherwise believe available in a 15 and 16 percent market.
Assumptions and preferred-rate takeover plans aren't panaceas. But they are the foundations on which buyers and sellers can make transactions go, however, high interest rates remain. Most sellers with assumable loans recognize that they may have to take back short-term secondary financing -- that is, defer part of their sale proceeds -- in order to enable the buyer to take over the existing financing.
That's a drawback, but staying on the sidelines waiting for the uncertain reappearance of low mortgage rates could be much more painful in the long run.