Assumable Loans, Mortgages and Transferability

The world you live in has changed because some rules changed, some of the patterns in law and practices changed.  Up until about 200 years ago, transferability was not allowed.  What is that?  Say I buy a house form you and we agree that I will pay you $500 a month for 30 years.  I know you, we like each other. We agree.  And I start paying you.  At some point along the line, you decide to buy sell this contract to someone I do not know and when I meet I do not like.  I do not want to be "in business" with the new person.  Today, such an arrangement is possible, in fact, common.  It is called the secondary market.  A few hundred years ago, it was not allowed (unless all parties agreed.)  Much of the high fiinance mischief today comes from that change in law.

About 30 years ago, mortgages were common.  This is no longer the case.  As is usual, the term mortgage is still used, but almost no one gets a mortgage.  You have a deed of trust.  The difference is a mortgage is grounded in complex law that protects the homeowner from the bank.  A deed of trust gives a bank a fast track to throw you out of your home.  You still pay for the advantages of a mortgage, but you get none of the benefits.  This change contributed greatly to bank profits.  At the same time, it allows for robo-signing and mass eviction of tenants in bad times.

At the same time, bankers ended the practice of "assumable loans." before about 30 years go, it was common to write into mortgage contracts that the loan was assumable, that is to say, anyone who met the credit criteria could take over the house and payment.  As long as the new person was of the same credit standing as the original buyer, what did the bank care, the money kept coming in.

An assumable loan allowed elderly parents to pass a house on to the kids before the house was paid off, it allowed someone in a jam to get out from under a house he could not afford and other unusual circumstances.

Well, with assumable loans there is no sale and resale, no new mortgage fees, no excise taxes, all sorts of revenue opportunities do not emerge.  So that option disappeared, like mortgages about 30 years ago.

Those options disappeared during the savings and loan crisis of the 1980s.  It was a crisis that did not go to waste.  I recall watching those changes and thinking, this is not good.  20 years later, deeds of trust and non-assumability are playing a big role in the housing crisis.

It does take about 20 years for the bad effects of awful policy to take full bloom.  In 2012 Obama signed  The National Defense Authorization Act (NDAA) for Fiscal Year 2012...

In about 20 years we'lls see the full horror of that law.

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