There's a powerful new mortgage money source with its sights set on thousands of new houses.
It's called HOMAC and could deliver a bundle of dollars and innovative loan terms to you in the coming months if you're in the new-home or condominium market.
HOMAC stands for Home Mortgage Access Corp. It is a three-week-old, wholly owned subsidiary of the National Association of Home Builders, but it is likely to spin off as an independent company within the next 18 months.
Stripped to its essentials, HOMAC will be a wholesale mortgage-money distributor on a vast scale.
It won't function as a direct lender. It won't be a bank or savings and loan association. It won't own any of the loans it finances.
Instead, it will be a private agent that buys huge chunks of money in the capital markets -- hundreds of millions of dollars worth at a clip -- on behalf of large numbers of clients. Those clients will be dues-paying homebuilders, most of whom will get access to financing possibilities they've never had before.
Those builders will be able to custom order loans that no S&L or bank will make in their local areas. For example, beginning next month they'll be able to offer consumers 15-year "growing-equity" mortgages with initial rates set 4 to 5 percentage points below regular market rates.
(Growing-equity loans are designed to pay off the borrower's principal debt on an accelerated schedule, thereby reducing total interest charges to the consumer, as well as reducing the length of the loan.)
And they'll be able to offer 15-year fixed-payment conventional loans with 4 percent permanent rate cuts. They'll even guarantee "move-up" buyers large second mortgages at favorable rates to help sell their present homes.
You'll soon see some of the new loan types begin popping up in real estate ads -- no matter how small-volume or small-town the home builder may be.
The key to this new financing power will be HOMAC's capacity to cut better deals by buying money in bulk.
Rather than having to hassle with S&L loan committees -- themselves in tough financial shape -- local builders will be able to import money via their HOMAC pipeline. They'll bypass the S&L and bank loan committees in many cases, although local lenders may fill out the loan documents and service the mortgages for the long term.
HOMAC will negotiate huge packages of custom-tailored mortgage commitments with investors such as Fannie Mae (the Federal National Mortgage Association), Freddie Mac (the Federal Home Loan Mortgage Corp.), private mortgage-insurance firms and others that can assemble large pools of capital.
The corporation already has negotiated an open-ended agreement with Fannie Mae, the largest investor in American home loans. The package deal will involve at least $150 million in mortgages and will provide consumers with both long- and short-term loans that Fannie Mae doesn't finance through any other channel.
The "growing-equity" mortgage, for example, isn't on Fannie Mae's current list of standard approved loans. As a result, growing-equity mortgages haven't taken off yet as a widely available, popular form of housing financing.
HOMAC's first chunk of "big league" mortgage capital will also allow builders to make greater use of the so-called landlease financing technique for buyers who need help qualifying for a new-home purchase.
Under a landlease plan, the buyers initially purchase the house but not the land, cutting 20 to 35 percent off the price tag on the home, the size of the mortgage and the monthly payments. (Another way of looking at it is that buyers can afford to purchase 20 to 35 percent more house under a properly structured landlease plan than they'd otherwise be able to.)
The buyers rent the land from the builder (or more typically from an investor brought in by the builder) at a favorable, predetermined lease amount. Once the homeowners can afford to purchase their land -- again at a price level predetermined by an appraisal formula -- the entire house is theirs.
Landleases have never been used extensively in the Washington area for new homes. But with cut-rate Fannie Mae mortgages, and 4 and 5 percentage-point buydowns (front-end subsidies), now more readily available with landlease plans, you'll probably see far more of them offered by builders later this fall and next spring.
HOMAC will be a national pipeline for "whatever financing vehicles can work and make sense in the housing marketplace," according to Paul Barru, the Colorado homebuilder who's been elected its first chairman.
Although Barru concedes that the corporation can't directly lower capital market rates through its operations, he says nonetheless that it should enable individual builders across the country to deliver cut-rate financing options to consumers that wouldn't otherwise be available.
For example, a buyer who'd prefer a 15-year, 11 percent growing equity mortgage instead of a 30-year conventional plan, currently would be out of luck at the vast majority of subdivisions or condominium projects right now. When HOMAC gets its pipeline flowing, however, buyers will be able to choose the GEM, or evaluate its pros and cons versus an FHA 11 percent loan plan.
Builders who formerly signed up with a local lender for just one or two financing plans for buyers will suddenly be able to offer a virtual supermarket of mortgage options, from short-term to long-term, cut-rate to market rate.
They'll be able to buy retail at HOMAC's national wholesale money market by putting in advance orders -- "commitments" in financial parlance -- giving them the right to pick and choose mortgages for customers up to set dollar limits.