So why don't banks make loans assumable???

Yes, I got my real estate license in 1979 and I remember the assumable loans of the 80's.  It got us through the late 70sa nd early 80s times when interest rates were sky high, people were happy to put some cash down and assume a lower interest rate mortgage.  I agree, if some of todays loans were assumable I would certainly be taking advantage and buying more proeprties myself as an investor and I have tohers who would love to buy but have more than 4 loans already and cant' find a bank who will finance them. Works great for self employed owner occupants as well, they are really havign a hard time getting mortgages these days.

What an interesting post.  I didn't have time to read all of the responses, but the post made me think.  It seems like assumable loans could be a good solution for everyone and help get us out of this housing crisis a lot sooner.

I've read thru this post and many of the responses.  A lot are so quick to bash the banks and call them greedy, etc., in re: to not offering assumable conventional loans (not to mention the thouhgt of non-qualifying assumable loans) but the bottom line is is the free market principles do and always will prevail - the whole intent of the free market economy.  Don't get me wrong - i do not like the big banks at all & never will.  When the govt gives out handouts which is counter to free-market-principles, the consumer buying patterns and expectations are re-conditioned. It is obvious that the majority of those responding have reconditioned their expectations or wants of  the lending industry because it is standing between them and their accustomed sales volume. I'm a mortgage broker, & no, i do not like what has happened either and what we are dealing w/ at the moment.  However, understanding what is occurring allows me to adjust and move forward (or get out). 

Let me ask you - if your retirement account savings was a mortgage you had lent to a buyer, let's say you lent your $300,000 nest-egg to a qualified buyer paying you 5% interest.  You likely charged him 1% origination fee, etc., because you spent numerous hours to obtain and assess his ability to re-pay you (& consulted a financial advisor to help you w/ this) and also researched the title (& placed a security lien) to ensure someone else didn't have a lien on the property ahead of you (just in case you needed to take possession of the property some day).   Now, this buyer wants to sell their home and they want you to blindly allow the next buyer to assume the loan - with no qualifying, no search of the title, etc..  Would you risk your nest-egg in such an arrangement?  The same principles apply here as w/ the banks.  It has to make economic sense for all 3 parties involved in order for the transaction to take place.  There is a risk and effect relationship w/ the rate & pricing involved.  (There are a lot of costs involved in supporting a lending operation.) I am not defending the banks - That is the last thing you'll catch me doing.  But understanding the cause & affect, i can assess the impact & what it looks to be going forward, in my personal mortgage brokerage business in this environment and adjust or get out.  I have found, in past experiences, when i seek to first understand, i can then plan in moving ahead whether i like the options it gives me or not.  I hope this is helpful in some sense in dealing w/ the current market situation... bec i think it will be like this for some time coming.

So, say Congress will mandate assumption on new loans, the banks will do it. Gladly.  

Short term:  The banks would make more money.  Here's what would happen: This afternoon, banks would issue rate sheets with the 30 Year at about 8-8.5%. That's the risk premium for just the interest rate exposure on qualifying assumptions.  If you want to mandate non-qualifying assumptions, add a couple points to that.

For the next few years, no bank would resell a mortgage--they'd want to retain the spreads.  That's 6, 7, 8% spreads...that adds up.  You'd have every regional bank loaded with local mortgage loans, there would be no loans to local business, and you'd create a worse credit crunch than 10 Lehmans collapsing.

Long term - just a few years from now:  Hmm...bank balance sheets loaded with residential mortgages in a rising rate environment...replace "banks" with "S&L" and you see where I'm going.  

You want a smooth, healthy housing market:  Give everyone with 12 months' payment reserves a .125% or .250% interest rate deduction.  Reward people who put away that safety net.  The foreclosures started because people couldn't make payments.  Losing your job sucks, but that's life.  Not having reserves, that's what causes foreclosures.  The second wave of strategic defaults was still tied to wave #1 of "lost job, no reserves."

Even if available, it wouldn't work here in Ocala, Fl.   With property values at 50-70% of what they were 3-6 years ago, most mortgages are upside down that much.  So buyers would be foolish to even attempt to buy that high.

There would be a lot of issues.  who wants to assume a loan that is underwater? 

I was not in the business in the 1980's but to me, it would seem that so many of the homes owned today for sale are being sold for less than the amount owed... what buyer would want to assume a loan that was for more than the market price of the home?

That said, for homes with equity in them, this might serve a good purpose...

The problem with that idea is the "short sale" itself.  Buyers are not going to want to assume a loan that is more than the market value.  I like the way you think outside the box and try to offer solutions though.

I owned a home in Houston in the mid 80's and we were transferred and had to sell it.  I found a buyer--but was going to have to bring $19,000 to closing if the client had to get their own mortgage. 

I asked if the loan could be assumed.  They said NO.  I told them I would walk away and they can have the house and lose even more money...or allow the new buyers to assume my loan.  They ran a credit report and let them assume the loan. 

I think if more people force the issue....we might just be able to get them to allow people to assume the loans. 

You will see buyers trying to assume some of these sub 5% loans that are being originated now in another 5 years or so.  Again, it's not being done now because the homes that have good financing are not going on the market. 

In this environment banks are unlikely to call a note due if the payor changes but payments continue. But if interest rates rise, things can change. Its a risk, but so is everything. Selling "subject to" is a useful tool but only if you, as a seller understand those risks.

From a bank's point of view, one would think that they are better off having two people interested in seeing to it that payments are being made rather than just one, since selling"subject to" does not relieve the seller from his obligation under the note.

How about people qualify to buy the home on a new loan.  I dont know how many wrap loans and assumables I cleaned up when I was with the FDIC back in the 90s. 

I am sure we all would like no fee loans, no points, 0 % interest, no credit check, no money down and 100 years to pay it all back. 

Then you might be  able to sell homes.

Assumables make sense in a normal market, but not many people now want to start out with negative equity.