There is an important new source of mortgage money opening up nationwide that home sellers, buyers and investors ought to know about--particularly if you're after larger-than-average loans with innovative terms.
The new source is called the Residential Funding Corp., or RFC for short. You probably haven't heard much about it--if anything at all--because it's still putting together its network of participating local lenders in every state.
But if you have an interest in real estate, you stand a good chance of coming into personal contact with RFC in 1983.
That's because the new corporation is the first private-sector competitor to the two congressionally chartered companies that have dominated the housing market since the mid-1970s--Fannie Mae (The Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corp.).
Like Fannie and Freddie, RFC will provide huge sums of cash--an estimated $2 billion to $4 billion in 1983--for loans on detached single-family homes, townhouses, duplexes, condominiums and small rental properties. Like Fannie and Freddie, RFC will raise its capital on Wall Street and dispense it to individual home buyers through local savings and loan associations, banks and mortgage bankers.
Unlike Fannie and Freddie, however, RFC won't be regulated by Congress or have any link with the federal government. In practical terms for consumers, that means that RFC will be able to finance mortgages that go far beyond the current, congressionally imposed $108,300 maximum for single-family homes--a limit that cuts off large numbers of buyers in metropolitan housing markets with above-average prices, such as Washington.
It also means that RFC will be able to offer favorable pay-back plans, discount rates and terms on mortgages nationwide that aren't readily available today, no matter how high or low the market is priced.
RFC's standard mortgage plans, for example, will include "early ownership" loans of up to $200,000 that carry 10 percent down payments, 30-year terms at fixed rates, but that pay off the principal debt in full within 16 years.
The same rapid principal pay-off plan will be available on mortgages up to $150,000 with 5 percent downpayments. Current RFC rate quotes on these loans range downward from about 13 1/4 percent to 11 1/4 percent. (The latter rates involve
RFC will be able to offer favorable pay-back plans, discount rates and terms on mortgages nationwide that aren't readily available today, no matter how high or low the market is priced. "buydowns," or rate subsidies, paid by the home seller or builder.)
RFC's standard mortgages also include fixed-rate "jumbo" loans up to $500,000 that pay off in 15 years; wrap-around mortgages up to $150,000 that allow assumptions of an existing low-rate FHA or VA mortgage on the house; 30-year guaranteed fixed-rate mortgages up to $250,000 with minimum downpayments of 5 percent; fixed-rate 30-year mortgages for small-scale rental home investors; and "step" loans that hold payments constant for the first six years of a fixed-rate home mortgage, and then increase them 7 percent after that.
"Step" loans of up to $250,000 are designed to pay off the principal in 16 years, but involve no balloon payments at the end.
RFC's overall rates are expected to be competitive with--and occasionally even below--the rates on standard mortgages quoted by Fannie Mae and Freddie Mac. For the first week of 1983, for instance, that translates out to between 13 and 13 1/4 percent with no points or extras. Some participating local lenders, however, may charge points or other fees, so shop around before signing up for one of these new loans.
RFC is the creation of one of the country's largest bank holding companies--the $17 billion-asset Northwest Bancorporation--and its Minneapolis-based subsidiary, Banco Mortgage. Salomon Brothers, the Wall Street investment banking house, has a major role in RFC as well, selling mortgage securities that provide the capital for individual loans.
The largest private-mortgage insurance firm in the country--MGIC Corp. of Milwaukee--is underwriting the loans.
Barely three weeks in operation, RFC already has signed up 500 local lenders to originate its loans. By December it should have 2,000 or more, according to its president, Rebecca L. Walker.
The first set of participating lenders approved by RFC in the metropolitan Washington area includes Home Federal Saving and Loan Association and First American Bank of the District; McLean Financial Corp. of McLean, Dominion Bank Shares Mortgage Corp. of Fairfax, and the Carey Winston Co. of Bethesda.
What is most is most significant about the arrival of RFC on the national scene, say mortgage-market economists, is that it will open up the so-called "secondary market"--the Wall Street capital connection--to tens of thousands of consumers who'd previously been locked out.
National secondary-market rates often are lower, and terms more favorable, than local "spot" loan rates charged by lenders who intend to hold the loans in their portfolios indefinitely. S&Ls and banks often won't make loans that they can't sell to investors like Fannie Mae (which owns $69 billion worth of American home mortgages, or about one out of every 20 in your neighborhood).
With RFC around to buy nonstandard, larger loans with innovative pay-back plans--the ones that Congress won't let Fannie Mae buy--local lenders won't have to say "no" as often to borrowers in 1983 as they did in 1982.