New York-based mortgage platform Roam has secured a $1.25 million seed round, allowing the company to officially launch its services on Wednesday. Roam focuses on a distinctive niche within the mortgage industry: assumable mortgages.
Tech executive and investor Keith Rabois at venture capital firm Founders Fund led the capital injection. It also included Opendoor co-founder Eric Wu, Culdesac CEO Ryan Johnson and #ANGELS founding partner Jana Messerschmidt.
Assumable mortgages, the company’s primary bet, were relatively commonplace a few decades ago. It allows qualified buyers with a government loan to purchase a home by assuming responsibility for the sellers’ mortgage terms, including the current balance and interest rate.
The fees are typically lower than with new loans, and no appraisal is needed. However, the buyer must submit to the application and underwriting process to qualify, just as they would in any new mortgage.
The product has appeal given that most homeowners with low rates mortgages aren’t motivated to sell their homes in the current environment. Moreover, many buyers are waiting on the sidelines, paralyzed by low housing inventory and high rates.
“This wave of immobility has created a once-in-a-lifetime opportunity for Roam to bring a much-needed solution to consumers and the housing market,” Mayopoulos said in a statement.
Roam said it helps homebuyers secure home loans “as low as 2%” through the mortgage assumption process. The product is available in five states: Georgia, Arizona, Colorado, Texas, and Florida.
“Assumable mortgages are one of the most undervalued assets in America,” Raunaq Singh, founder and CEO of Roam, said in a statement.
Specifically, Roam said it helps homeowners with an assumable mortgage by providing personalized marketing material to attract potential buyers and better offers. The platform advertises sellers listing to qualified buyers.
On average, Roam buyers save up to 50% on monthly mortgage payments compared to buying a home with a traditional mortgage at today’s rates, the company claims. All government-backed loans are eligible for assumption by law, comprising about one-third of mortgages in the U.S.
In a paper published by the Urban Institute in October, Ted Tozer, the former head of Ginnie Mae, argued that government changes to assumable loans could benefit the market. So why is this program so rare? In short, because of strict rules and product limitations.
Fannie Mae and Freddie Mac loans – nearly two-thirds of the mortgage market – are not eligible to be assumed.
And there are some significant “infrastructure” updates needed, experts say. Servicers can only charge up to $900 to process, underwrite and close a transaction that includes a loan assumption. That isn’t enough to compensate for their costs, let alone make a reasonable profit, Tozer argued.