Mortgage transfers boom as a way to beat rising rates

Mortgage transfers boom as a way to beat rising rates

The only goal was not to lose money.

When Matthew Kilboy listed the Washington, D.C., condominium he and his husband bought in 2017, he acknowledged that high interest rates and a soft market for condos meant that more than the $529,000 he paid Any dollar more was a dollar they would thank their lucky stars for. For.

A similar two-bedroom and two-bath unit in the building recently went for less than half a million. The $549,000 price listed in April was originally a wish.

A month later, the couple closed on $565,000—thanks to a little-known amenity that has become increasingly popular as mortgage rates have risen. Their unit came with a 30-year mortgage, with a fixed rate of 2.25 per cent, which the couple closed after refinancing in November 2020. By advertising that buyers could mortgage, the couple, who have moved to Denver, received several over-asking price bids that looked like a relic from the distorted real estate market during the Covid lockdown.

“It was the first sentence of the listing,” said Mr. Kilboy, 39, a former Navy nurse whose loan, backed by the Department of Veterans Affairs, could be passed on to the buyer. “Nobody got such a low interest rate, so we were really pushing it.”

The Federal Reserve may have slowed interest rate hikes, but monthly mortgage costs remain more than double the level from 18 months ago. This has significantly reduced the supply of inventory for sale by discouraging millions of homeowners who were locked into bargain rates from selling their homes during the pandemic and potentially in additional borrowing costs on a new home. Was spending hundreds of dollars a month.

Because there is so little for sale, home prices have remained stable, and have even resumed their climb, despite steep increases in borrowing costs. There is a perception among real estate agents and economists that anyone who has secured a mortgage rate of 3 percent or less owns a valuable asset that they are reluctant to give up.

But every asset has a cost. And now an emerging cadre of investors and real estate agents is trying to sell mortgage rates from years ago by shifting them to new buyers.

Redfin, the real estate brokerage, has seen a rapid rise in Mr Kilboy’s listings, with comments such as “beautiful home with loan estimated at 3.25 per cent”. Facebook groups have popped up to find buyers for them, while new companies are offering services to speed up the transfer.

“Mortgage homeowners have something valuable that many home buyers want and would be willing to pay,” said Daryl Fairweather, chief economist at Redfin. “For those who had a hard time when home prices peaked but mortgage rates were still low, this could be an attractive way to get out of a regretted purchase.”

Investors are just as eager: The euphemistic “creative finance” has become a hot topic of conversation on sites like BiggerPockets, a forum where landlords offer tips on such topics as operating short-term rentals and buying first investment properties. In books, seminars, and YouTube videos, influencers offer advice on how to trick struggling homeowners into transferring to a low-rate mortgage without their bank’s knowledge—a valuable but extremely risky tactic that title companies can’t afford. Says he has seen more.

“It’s very tempting,” said Scott Trench, chief executive of Bigger Pockets, adding the disclaimer that many of these strategies often involve additional risk and paperwork that most people are unfamiliar with.

From pedestrians to bullies, it all underscores that the country’s real estate market is sadly frozen. Buyers are angry that the low cost mortgages are gone. Sellers are reluctant to reduce their prices from pandemic peaks. In lieu of acceptance, some determined folks are trying to use imagination and fine print to create a portal to the cheap-money days of 2021.

Most US mortgages are not directly eligible. However, popular government-backed mortgages — such as those insured by the Federal Housing Administration, the Department of Veterans Affairs and the Department of Agriculture — generally, said Michael Fratantoni, chief economist at the Mortgage Bankers Association. These loans are most often used by first-time buyers and account for about a quarter of mortgages outstanding, according to Black Knight, a mortgage technology and data provider.

In theory, any of the millions of homeowners who have a predictable low-rate mortgage have a valuable advantage selling their home. Still, real estate agents say they can be hard to move in practice. For example, homeowners who transfer a VA-backed mortgage may lose the ability to obtain another similar loan unless they can find a VA-qualified buyer to take over their original mortgage.

Or consider a homeowner who has a low-rate mortgage but has paid off part of it: In order to qualify for the loan, a buyer would have to come up with a large down payment for the seller’s equity—something that very few people can do

Craig O’Boyle is hoping to make a business making assumptions fast and easy. Mr. O’Boyle is a real estate agent who has been selling homes in Colorado for three decades, long enough he remembers to read through door-stopper contracts that buyers and sellers now simply click on DocuSign. He said that while reading about some of the loans being approachable, he had long thought that if rates ever went up those owners would suddenly find that their loans were worth it.

“And then here comes this change in the interest rate market,” Mr. O’Boyle said.

Last year, he and a partner started perception solution, a consulting firm that, for a $1,100-per-deal processing fee, helps real estate agents transfer mortgages between sellers and buyers. In his pitch to agents, Mr. O’Boyle argues that he pushes sub-3 percent rates because he favors marble countertops or views of the mountains.

“You market it, and assuming you’re competing against the house next over, your house should either sell faster or for more money,” he said.

Even for most people using a traditional mortgage that cannot be transferred, some form of rate compensation is becoming the norm. While home prices have fallen from their all-time highs last June, they haven’t come down enough to make up for the rise in mortgage rates, and they’re on the rise again.

To encourage new loans, mortgage companies have begun marketing products in which borrowers can “lower” rates by paying several thousand dollars at significantly lower interest for a year or two. One of the more popular products”2/1 buy,” in which a borrower pays for an interest rate reduction of two percentage points during the first year and one percentage point in the second.

Simply put: “Most homes are unaffordable at today’s rates,” said Luis Solis, a real estate agent in Phoenix and Portland, Ore.

He said that most of Mr. Solis’ recent deals have some form of interest rate compensation, a price cut in name only. This is usually a lump sum amount at closing that buyers use to buy temporarily lower rates. Sellers with a lot of equity can cut out the middleman and price the buyer’s purchase for less than prevailing rates by acting as a lender-seller financing, it’s called.

Assuming a mortgage, paying lower rates: These are creative yet straightforward solutions to rising borrowing costs. But on the fringes, a growing number of investors looking to buy a home with minimal cash are trying a gray technique of finance – known as a “subject” or “sabto” – in which they try to find people who can afford to buy a home. Let’s try those who have fallen behind on their loans. and make a one-party agreement to take over their (low-interest) payments. (The deal is said to be “under” the existing debt.)

The strategy has obvious appeal when interest rates are high, but it comes with a big asterisk: Once a house is turned over, banks generally have the right to foreclose on the loan—that is, demand that the seller The mortgage balance to be paid off immediately. Also, if the buyer falls behind on payments, the property can still be foreclosed – ruining the seller’s credit, for a home that he no longer owns.

Despite this, Bill McAfee, president of Empire Title, stated that he had seen an increase in customers seeking to convert their titles under these terms, and made stock disclosures warning both parties of what could go wrong.

“I’m not saying I agree with doing this, but it’s a way to acquire property with very little money,” he said. “They have to figure out whether it’s worth the risk.”

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