Mortgage Crisis Solution: Rate Buydown

Mortgage rate buy down strategies are gaining momentum and enjoying widespread and diverse support as a solution to some of the nation's most pressing real estate problems. Rate buydowns would make homes more affordable, and stimulate the residential housing market with increased sales.

Realogy Corporation, a global provider of real estate and relocation services, recently completed a survey of brokers from companies including Sotheby's, Century 21, Coldwell Banker, and ERA. From the information gathered through the survey, the company learned that if 30-year mortgage rates were to become immediately available today at 4.5 percent, 95 percent of participating brokers would expect an increase in home sales. Almost half of those surveyed thought the spike in sales would be between 10 and 25 percent, and the majority of respondents thought that the affordable mortgage rates would also lead to higher home prices overall.

Pushing a rate buydown

Armed with this new information and industry insight, Realogy approached the Treasury Department and asked for mortgage rates to be lowered under a short-term government buy-down of mortgage rates to 4.5 percent or lower for 30-year fixed-rate mortgages. The company and other supporters of the idea believe that the homebuyer incentive should apply to the purchase of all new or existing homes priced under $1 million as a motivation to attract buyers back to the depressed real estate market. Realogy has teamed up with numerous real estate organizations and interest groups to lobby government officials.  The company believes that a massive rate buydown program could be included as part of the second economic stimulus package currently being discussed in Washington.

Luring buyers back to market

The Government National Mortgage Association, or Ginnie Mae, for example, could oversee that kind of rate buydown. Ginnie Mae guarantees FHA and VA loans, insuring that investors who fund those mortgages get paid back their principal and interest in a timely manner. To get consumers through this challenging economic period, Ginnie Mae, with the backing of the U.S. Treasury, could intercede and work out arrangements with investors to make lending attractive from their perspective, while simultaneously facilitating inexpensive 30-year fixed mortgages as suggested by Realogy.

In statements to the press, Realogy explained that it's noticed a conspicuous emerging theme. Significant numbers of buyers are ready to return to the housing market in search of the bargain-priced homes that are now for sale, but they remain on the sidelines because of fear that rates are too high, or that housing prices have not stopped falling. So, despite the fact that they have good credit, they're hesitant to buy until they see more evidence of a stable market. By taking advantage of pent-up demand through the proactive step of offering a widespread mortgage rate buydown-perhaps facilitated by Ginnie Mae-most real estate professionals surveyed by Realogy believe that those creditworthy (but reluctant buyers) would have the confidence to go ahead and sign purchase offers.