A 3% Mortgage Rate in a 7% World? This Startup Says It Can Do That

livemint.com:

There are millions of outstanding mortgages with a 3% interest rate. A new startup says it can help today’s home buyers get their hands on them. Mortgage rates are now above 7%, leaps and bounds above the 3% they grazed two years ago.

Buyers and sellers alike are giving up, sucking demand and supply out of the housing market. And things are expected to stay that way, with the Federal Reserve signaling plans to keep rates high for the foreseeable future. Roam, a real-estate company set to launch Wednesday, is betting that it can popularize an obscure workaround.

“Assumable loans" allow sellers to transfer their own mortgage loans to the buyer alongside the house. In theory, the idea sounds great, at least for discouraged house hunters who can inherit a lower-rate loan. Sellers, in turn, might fetch higher prices for their houses.

But Roam’s vision face an uphill battle. Loan assumptions haven’t gained much traction recently, even though rates are up. Many lenders are cool to the idea because for them it would mean more work for less money.

Some 22% of active mortgages are part of the government programs that have assumption features, according to the mortgage-data and technology company Black Knight. That includes loans extended through the Department of Veterans Affairs and the Federal Housing Administration programs. Few consumers know about the option, and fewer still follow through with it.

The FHA has processed 3,349 assumptions in the fiscal year that ends Sept. 30, up from 2,566 in the year prior. Raunaq Singh, Roam’s founder and chief executive officer, says his new company will find and advertise home listings attached to attractive assumable mortgages.