Do we need assumptions back to turn the market around?
Some people are now suggesting that Fannie and Freddie need to eliminate the “due on sale” clause in their notes and trust deeds. When I first heard this I didn’t really see how this would make a big difference, After all, interest rates aren’t that far off of their historic lows and my guess is that only a small handful of the properties on the market today are sitting with underlying fixed rate mortgages in the 5% range. We also know that there is no way Fannie and Freddie are going to allow their loans to be assumed by borrowers that cant qualify for a mortgage on their own. So why would assumptions help the marketplace and possibly Fannie and Freddie themselves? Here’s an example. If someone owes $ 200k against a property that is worth $200k and desperately needs to sell. Under current conditions, that person is in a very tough spot and their is a good chance that the home will go into foreclosure. But if the current homeowner in that scenario is able to find a buyer that qualifies for the payment and wants the property; Fannie, Freddie, their investors may be better off allowing that loan to be assumed to such a person rather than allow that loan to go into foreclosure once the original buyer can no longer make payments. It is doubtful that either Fannie or Freddie will do away with “due on sale” clauses all together, but creating a way to evaluate and make case by case decisions like this would be a positive move for the market.