Out of the kaleidoscope of flashy, dizzying and sometimes ephemeral home financing plans that have whirled around house-shoppers in the past year, the outlines of a few primary ones are starting to emerge as more lasting ideas.
Adjustable-rate mortgages dominate what lending institutions are offering, according to surveys and interviews with people in the housing field. But consumers are still skeptical of the device, builders and real estate experts report, and lenders increasingly are adding buyer protections in efforts to overcome this reluctance.
Lenders and builders also have found that few consumers will accept balloon mortgages unless there is a guaranteed renewal of the mortgage at the end of the period; the periods also are getting longer.
Builders continue to rely heavily on expensive "buy-downs" of interest rates. Shared equity plans, teaming home buyers with investors, appear to have potential, although they are not being widely used yet. And no-interest mortgages, with large down payments and payoffs in five or seven years, appear to be a bust.
The financing methods that are keeping the resale market alive are assumptions of older, low-interest mortgages and seller financing.
Seller financing may be on the verge of getting organized for the first time. At least two local financial firms are starting to get involved as middlemen in a new kind of business that seems to have great potential.
William S. Steed believes there is enough potential to form a company specializing in the processing and servicing of seller-financed mortgages.
Steed used to own Steed Mortgage Co. but sold most of his interest in it and left in March to open East-West Financial Services in Bethesda, which he says is the first company of its kind in the country. Sellers who take back financing for a home buyer often are careless in qualifying the borrower and fail to package the loan so that it can be sold in the secondary markets, Steed said.
"The theme we are trying to get across is that he is no longer seller. He is a lender, and he has to act like one," Steed said.
"There are some real horror stories," he continued. "People who are completely unqualified but the seller takes them anyway. Some don't even make the first payment and then tell the seller there is nothing he can do about it."
For $250, East-West will process a seller-financed mortgage so that it eventually can be sold in the secondary mortgage markets if the seller wants to get cash for it. Steed said the packaging means the seller can get private default insurance, and his company also will service the loan for half a percentage point of the mortgage amount a year.
Perpetual American Savings & Loan Association appears to be the only other area lender on the verge of getting into the seller-financing market. The S&L has "under consideration" a plan to process and service seller take-backs for one point--1 percent of the mortgage amount--with a minimum fee, said Perpetual American President William Sinclair.
Perpetual American is one of several local lenders with programs for customers who already have low-interest mortgages and want to sell their homes. This usually involves blended rates that may mean the new buyer would get a 13 to 14 percent rate.
But Sinclair called adjustable-rate plans the "mortgages of the future" and says that in a year or two the dust will have settled and there probably will be no more than five standard adjustable-rate plans offered.
Most other lenders here are relying heavily on adjustable-rate mortgages, according to a recent survey by the Mortgage Guaranty Insurance Corp. (MGIC) of the District and 10 states in this region. The number of lenders in the region offering adjustable mortgages is expected to increase from 62 percent at the end of 1981 to 94 percent by June, the survey showed. While more than half percent said they would continue to offer fixed-rate mortgages, these were expected to comprise only 28 percent of the total volume of loan originations in the region by June while the adjustables were expected to comprise 66 percent.
"The survey suggests that the marketplace is settling somewhat as lenders strive to balance their needs with what local area consumers will accept," Darryl W. Thompson, MGIC senior vice president, said in a statement explaining the results. "Characteristics of lending programs are changing as lenders pay greater attention to borrower concerns and costs in designing new mortgage instruments."
Among those characteristics listed are annual rate and payments adjustments and use of the more stable Federal Home Loan Bank Board average mortgage contract rate as an index for adjustment. Almost two-thirds said they plan to discount the initial rate on adjustable mortgages to attract borrowers.
While the general categories and characteristics of loans being offered are starting to settle, the details of each plan being developed by lenders still can be confusing, even to the builders who must sort through them to decide what to offer their buyers.
"We are darn near getting as many plans as days in the week," said Maryland homebuilder Robert Mitchell. "Banks and mortgage companies are calling us all the time and sending us weekly flyers to tell us what's available."
For example, Mitchell just got two commitments that involve fixed rates for buyers reluctant to deal with adjustables. One is a five-year loan that balloons. The other is a fixed-payment loan that is paid off in 15 years with a fixed rate of 16 1/4 percent that he plans to buy down.
The variations mean that builders increasingly try to suit individual financing needs and sometimes even shop at various lenders to help just one buyer obtain financing on a spot basis, rather than sticking with packages of specific financing plans.
"Now you are constantly negotiating permanent loan packages, and builders are shopping around," Mitchell said. "It's much more customized now."