Housing affordability is at its lowest level in more than a decade, according to the National Association of Home Builders (NAHB), and there are few ways to circumvent the rising costs of housing.
Mortgage assumption is a niche option that gained momentum in 2023. An assumable mortgage enables a qualified buyer to take over a seller’s mortgage terms, including the existing balance and interest rate. Typically, the fees are lower than those for new loans and no appraisal is needed.
In 2023, the Federal Housing Administration (FHA) and the U.S. Department of Veterans Affairs (VA) handled about 6,400 assumptions, more than double the amount in 2022, according to The Wall Street Journal.
About $8.5 trillion in mortgages were originated in 2020 and 2021, the Mortgage Bankers Association (MBA) reported. Included in that total were nearly $1.5 trillion in FHA and VA loans.
Raunaq Singh wanted to capitalize on that opportunity and founded Roam, a platform that helps buyers and sellers with the assumption process. Roam acts as a facilitator, synchronizing all stakeholders involved in the assumption process, including real estate, title and escrow agents, attorneys, and the buyer and seller themselves.
Launched in September 2023, the company secured $1.25 million in seed funding, led by Keith Rabois at venture capital firm Founders Fund. Opendoor co-founder Eric Wu, Culdesac CEO Ryan Johnson and #ANGELS founding partner Jana Messerschmidt also contributed to the first round. Roam is currently available in Georgia, Florida, Texas, Arizona and Colorado, with plans to roll out its service in other states later this year.
Importantly, the mortgage assumption process is riddled with hurdles. To begin with, assumptions are limited to FHA, VA and U.S. Department of Agriculture (USDA) loans, with rare allowances for conventional adjustable-rate mortgages (ARMs) under specific conditions.
Additionally, servicers often find the process financially unviable due to inadequate compensation, prompting calls for regulatory reform. Moreover, some buyers face challenges in covering the down payment required to bridge the gap between the home’s sale price and the remaining mortgage balance.
HousingWire spoke with Singh to understand how Roam is trying to streamline the mortgage assumption process.
How do you encourage mortgage professionals to utilize assumable mortgages?
Traditionally, mortgage servicers have not focused on assumptions due to the historical lack of assumption volume. However, we have found that assumption demand is growing significantly and volume was up by 50% in 2023. We expect volume to grow 10 times this year.
As servicers look to meet this rapidly growing demand, they can tap into ancillary revenue streams through mortgage assumptions beyond the origination fee. With assumptions, new revenue streams can open up for servicers. They can continue to benefit from the mortgage servicing rights instead of having it paid off. They can also earn an origination fee on the buyer’s second lien or on the existing seller’s new mortgage.
How do you help real estate agents?
We help listing agents generate significantly more buyers for their home sales. If a listing agent wants to sell their property, we help them identify whether or not the property they’re selling comes with an assumable mortgage.
We found that less than 1% of people out there actually know that their mortgage is assumable. In other words, they don’t know that their FHA or VA loan can be attached to the home sale when they sell it. So, we help them include that marketing for that home. We help agents get a marketing edge by including their mortgage with the home sale. And then, we help buyers’ agents show their clients inventory that they otherwise did not know they could afford.
Delays in mortgage assumption processing by servicers can be substantial at times. What factors contribute to this and what steps is Roam taking to address the issue?
Several factors can contribute to delays in mortgage assumption processing by servicers. Assumptions haven’t been popular since the early 1980s when rates rose rapidly. As a result, the industry hasn’t been trained on the ins and outs of the assumptions.
As assumption volume has spiked for the first time in 40 years, mortgage servicers are facing growing pains as they staff up to support the customer demand. Even when assuming an existing loan, the new buyer still needs to undergo a thorough manual underwriting process. This includes verifying income, employment, credit history and assets to ensure the buyer can afford the monthly payments. This process can be time-consuming for any type of mortgage application, especially with complex financial situations.
Additionally, some servicers still rely on fax machines and pen and paper for documentation in an assumption. This can create bottlenecks and delays in the process, in contrast to providers across the traditional mortgage market which tend to have more automated systems. Assumption processes can vary significantly between servicers. This inconsistency means customers and agents can be confused and find delays when getting up to speed on a servicer’s process, as each case requires figuring out the servicer’s unique requirements and procedures.
Roam works with a dedicated contact or team at each servicer, ensuring speed and repeatability of processes. Additionally, Roam ensures that our concierge teams comply with a well-defined, servicer-specific process and guidelines. This includes ensuring the transaction adheres to consumer protection laws and fair lending practices, and a 45-day maximum for completing the approval process. Lastly, Roam’s proprietary platform helps automate key steps in the assumption process.
How do you assist your clients in securing second-lien mortgages, and do you have any influence over the rates associated with these secondary loans?
We support borrowers in securing second-lien mortgages by connecting them to partner lenders who offer relevant products. Roam customers have access to preferred rates due to Roam’s volume and we expect these rates to further improve as customer demand continues to grow. Roam does not receive any referral fees from second-lien partners.
Given that assumable mortgages have finite availability, how do you foresee the trajectory of your company’s future?
The assumable mortgage opportunity will be meaningful until rates come back down to 2%, which is unlikely to happen for the next decade. Mortgage rates are still above 7% and most experts — including Fannie Mae, the Mortgage Bankers Association and Realtor.com — expect rates to stay elevated above 6% for the rest of this year. We have found that assumable mortgages are very attractive for buyers when they offer lower rates than the prevailing market rate.
If we think back to 2020 and 2021 when we had ultra-low-rate mortgages being originated, nearly one out of three loans were government-backed and assumable. This amounts to $1.4 trillion in assumable loan value originated at an average rate of 3%.
Roam’s platform displays a curated set of assumable mortgage listings which meet certain criteria that are attractive to consumers, such as homes that require a lower down payment with loans at lower rates. Today, there are over 5 million mortgages that have an assumable rate below 5% and still have a greater than 50% loan-to-value ratio.
For buyers who need additional help with a down payment, we can introduce them to partners who offer support with a second lien. As rates come down over time, we expect second-lien rates will also decline. As a result, the blended rate for the assumable loan plus the second lien will offer a significant discount to the market even as rates come down.
