Assumable Financing Redux: A New Challenge for Appraisal?

Journal of Real Estate Finance and Economics, Forthcoming

43 Pages Posted: 12 Jul 2019

See all articles by Michael LaCour-Little

Michael LaCour-Little

Federal National Mortgage Association (Fannie Mae); California State University at Fullerton

Zhenguo (Len) Lin

Florida International University (FIU) - Hollo School of Real Estate

Wei Yu

California State Polytechnic University, Pomona

Date Written: July 11, 2019

Abstract

Given the long term secular decline in interest rates, assumable financing has been of little concern for decades. But given both the growth of loans insured by the Federal Housing Administration (“FHA”) and recent increase in interest rates, this situation is likely to change very soon. Using data from California, we first document the dramatic increase in FHA-insured loans since 2007. We then derive the theoretical impact of capitalizing assumable financing into house prices as interest rates increase and simulate the effect on prices of homes sold with assumable FHA financing. Results are economically significant and likely to partially offset declines in house prices associated with higher mortgage rates. Findings imply that appraisers will need to adjust comparable sales to reflect FHA loan assumptions.

Suggested Citation

LaCour-Little, Michael and Lin, Zhenguo and Yu, Wei, Assumable Financing Redux: A New Challenge for Appraisal? (July 11, 2019). Journal of Real Estate Finance and Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3418449 or http://dx.doi.org/10.2139/ssrn.3418449

Michael LaCour-Little

Federal National Mortgage Association (Fannie Mae) ( email )

1100 15th St NW
Washington, DC 20005
United States
202-752-3318 (Phone)

California State University at Fullerton ( email )

5133 Mihaylo Hall
Fullerton, CA 92834-6848
United States
657-278-4014 (Phone)
657-278-2161 (Fax)

Zhenguo Lin (Contact Author)

Florida International University (FIU) - Hollo School of Real Estate ( email )

Miami, FL 33199
United States
3057799248 (Phone)

Wei Yu

California State Polytechnic University, Pomona ( email )

3801 W. Temple Avenue Pomona
Pomona, CA 91768
United States
909-869-2402 (Phone)

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