BarclaysAmerican Mortgage Corp. has introduced a home loan that can be assumed by subsequent buyers of the house.
The assumable mortgage allows a borrower to lock in a rate and would become a valuable asset if rates rose.
BarclaysAmerican, a Charlotte, N.C., subsidiary of Barclays Bank PLC, is offering a 30-year fixed-rate assumable mortgage with an interest rate half a percentage point higher than conventional loans, a company spokesman said.
The company plans to securitize the loans through its affiliate, BZW Investment Bank, which intends to issue the loans as AAA securities.
Demand Could Be Strong
Under the terms of the BarclaysAmerican program, the mortgage may be passed along to a buyer if the new mortgagee meets all financial hurdles passed by the homeowner at the time the mortgage was issued.
Despite a higher rate, the demand for assumable mortgages could be considerable if consumers believe that rates will rise. A homeowner with an assumable mortgage at a below-market rate is in an advantageous situation when seeking to sell.
Some mortgage bankers wonder whether consumers will understand exactly how attractive an assumable mortgage could be.
"I just don't know if they are willing to pay for it. Every time we offer a more expensive product with hidden value, like a convertible ARM, we get disappointing results," said Karl Mendenhall, senior vice president at First Union Mortgage Corp., Charlotte.
BZW intends to use a senior-subordinated structure to provide credit enhancement.
Under such a structure, defaults will be charged first to one segment of the investment, called a "B piece." This enhances the credit quality of the other portion, the "A piece."
Another possible benefit of originating assumable mortgages is that it may create an unusually valuable servicing asset, according to Mr. Mendenhall.
Because the loan may be passed along when the house is sold, the mortgage will tend to have a longer life, thus producing more servicing fees and making the servicing rights more valuable.