By Ben Eisen and Nicole Friedman
February 4, 2024
The Wall Street Journal
High interest rates have created buzz around mortgage ‘assumptions,’ but buyers must wade through red tape
Millions of home buyers can avoid high interest rates by snapping up existing low-rate mortgages—in theory. Doing so in practice is filled with obstacles.
Loans backed by the Federal Housing Administration and the Department of Veterans Affairs have provisions allowing them to be transferred from home sellers to buyers, or “assumed.” In other words: Even in a world of 7% mortgage rates, a buyer can get a 3% mortgage if he or she takes someone else’s.
With interest rates high, these “assumptions” have emerged as a buzzy way to make buying more affordable. But buyers and sellers, and people who advise them, say the servicers that process these assumptions are bogging down the process. It can be a lengthy wait just to have an application rejected.
That lack of urgency stands in contrast to new mortgages, which lenders typically scramble to close as quickly as possible. Mortgage companies make much less money handling an assumption than they would writing a new loan.
Many would-be home buyers are learning a hard reality: There are very few ways to circumvent the forces making homeownership the least affordable it has been in decades. Soaring mortgage rates have added hundreds or even thousands of dollars to the monthly cost of buying a home compared with just a few years ago. Many of the more common tricks to get a lower rate, like adjustable-rate mortgages, haven’t been panning out either.
Robert Carelli was thrilled when his offer to buy a house in Alexandria, Va., was accepted in late 2022. The seller agreed to let him take over the VA mortgage with a rate of just over 2%. Carelli and his family were preparing to move from Connecticut.
Mr. Cooper Group, the servicer, took four months to tell him he didn’t qualify, he said. The company told him the debt he was taking on was too high relative to his income. The calculation omitted his wife’s salary because she was starting a new job.
Carelli, who works in the Navy, thought that was wrong. He asked someone at the VA to escalate the situation with Mr. Cooper. He and his family were still waiting when they moved, and so they stayed with friends and at an Airbnb. In May, the company changed course and approved the transaction, and they were able to close on the house and move in.
“It was really just strong-arming them into doing what they should have done anyway,” he said.
The VA says companies should take no longer than 45 days to make a decision.
A spokeswoman for Mr. Cooper said that the company was pleased to help the Carelli family secure their loan, and that it must verify buyers meet credit and income requirements when approving all loan applications. The company experienced a 500% increase in assumptions last year compared with the year before, the spokeswoman said. To meet the demand, it has increased staffing and invested in technology.
Consumers last year filed 149 complaints related to mortgage assumptions with the Consumer Financial Protection Bureau, up from 97 the prior year and 67 in 2021, according to the bureau’s online database. One accuses a mortgage company of “intentionally delaying assumption.” Another says “neither my buyer, nor myself have been able to reach a human being” at the servicing company.
The VA issued a notice in December reinforcing that servicers are obligated to process assumptions. It said companies that don’t comply can be barred from the VA loan program.
