Mortgage assumability is a great way to stimulate additional real estate sales and also prevent many properties from being foreclosed!

In the 1970’s and early 1980, there was not a “due on sale” clause in mortgages. If this clause was removed, the number of foreclosures would drop significantly over the next six months. We would have buyers to take over these mortgages since it would require little or no down payment. Home owners and investors would be willing to pay more than the current comparable because there is no qualifying requirement and very little cash required and the belief that the market value will be going up in the next few years.

The new buyer would receive a deed which would have a clause “by accepting this deed, the buyer (Grantee) agrees to accept and assume the mortgage and become personally liable.”

The only negative is the possibility that a new buyer may not live up to their new obligation because of the ease of acquiring the property. Thus, a good credit history should be a requirement of the buyers. The positives are saving the foreclosure, stabilizing or increasing the real estate values, preventing future credit problems for some sellers, increased State revenue by State Stamps on Deeds and providing housing for a lot of good individuals who lost their employment and now have a regular job but cannot qualify because of credit issues.

This type of program would excite investors, since most investor loans for single family rental properties are 30% down (or at best 20% down) plus closing costs. My estimate is that this could reduce foreclosures by 20% within one year and would not be a subsidy by the Federal Government.

We don’t like the Government telling the mortgage industry what they can put in their mortgages. Unfortunately, they are already dictating to the mortgage industry.

Mortgage assumability is a simple answer whose time is right in 2010.


Posted by: Bill Watson, Chairman of the Board,
Watson Realty Corp.