In a move that could have a favorable impact on some home sellers and buyers in low- and moderate-income housing markets, Carrington Mortgage Services LLC will provide second mortgages to help homebuyers assume existing low-rate first mortgages.
Home sellers with loans insured by the Federal Housing Administration or guaranteed by the Department of Veterans affairs can market their home with an assumable first mortgage, where a qualified buyer can take over the existing mortgage.
Given that much of the U.S. book of mortgages has been refinanced in the past couple years, most have interest rates that are less than 4 percent. Because FHA loans are targeted at low- to moderate-income families, sellers in those neighborhoods are at a distinct advantage over competing home sellers whose conventional first mortgages are not assumable.
A big hurdle, however, for homebuyers in an assumption transaction is the down payment, which is the difference between the existing loan balance and the sales price.
So Carrington is reaching out to borrowers on first mortgages it services “to let them know that selling their home by allowing a new buyer to assume their low-rate mortgage is a possibility,” an announcement Tuesday said.
The statement said that fees are typically lower on assumed first mortgages, while no appraisal is needed.
“Carrington is committed to ensuring borrowers have every possible opportunity to obtain a loan on the home they want,” the company’s executive vice president, mortgage lending, Greg Austin, stated in the news release. “Assumable mortgages are another loan option that Carrington is educating home sellers and buyers about in this very complex real estate market.”
But even with the purchase-money second, which only allows up to an 80 percent combined loan-to-value ratio, the home buying borrower will still need to come up with 20 percent down — a big stretch for many low- to moderate-income buyers.
However, as more second-mortgage lenders jump in the assumption game, pressure will increase for the market to become more competitive.
The move not only provides an additional source of new junior-lien business for Carrington, but it also enables the Anaheim, California-based company to retain more of its servicing portfolio.
According to Carrington, conventional and USDA adjustable-rate mortgages might also be assumable in some cases. On VA assumptions, entitlement for the veteran who sold the home will be tied up in the assumed loan until it is paid off.
Two months ago, Carrington announced that home-equity second mortgages would be offered to borrowers in its servicing portfolio.
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