The first-ever DREAM transaction has closed with owners of a Chicago home receiving a check for over $41,000 to help pay down a portion of the principal on their existing mortgage.

The funds reduce the amount of principal the borrowers pay, but the note holder still receives the full sum.

In turn, this will allow them to move forward with their next property purchase as it eliminates the "lock-in effect," the product's supporters said.

DREAM stands for Discount for Real Estate Affordability and Mobility and was created by Takara, which calls itself a financial technology that creates products to unlock mobility and affordability.

Takara is the transaction architect and the trust administrator, the company said in a follow up response.

"When the borrower pays the discounted amount, that money goes to Takara, which uses it to purchase Treasury securities specifically selected to cover the original loan payments in full," it said. "Those securities sit in a trust that Takara administers, with payments passed through to the lender for the life of the loan."

Even when mortgage rates slipped under 6% in late February, the 30-year fixed was still well above the mid-2% to low 3% range it occupied for much of 2020 and 2021.

Takara launched DREAM with Great Lakes Credit Union and its wholly subsidiary Mortgage Forward (a credit union service organization) in January. On April 11, Frank and Daniella McGovern became the first homeowners to close one of these deals.

Frank McGovern said he wanted to keep moving, buying properties and building something. However, his current interest rate "was an anchor. DREAM let me pull it up," he said in a press release.

GLCU is the first institution to offer the DREAM product, however other financial institutions are ready to launch, with transactions in progress, Takara said. It is available to both credit unions and banks. Its client is the entity which holds the mortgage note.

"This closing is the proof of concept the industry has been waiting for," Takara CEO Jonathan Arad said in the press release. "DREAM works, and GLCU had the courage to go first."

Arad expects "many more closings to follow," adding the product is "a powerful tool" for credit unions to build their mortgage portfolios.

McGovern's initial reaction was shock at being told DREAM would move a portion of the unpaid principal balance off of the family's mortgage.

"But then it made sense," he continued. "You're trying to get people out of unmovable rates and out of something on a balance sheet that's not moving at all into something else that's more beneficial."

DREAM does not require any government program, no drop in the interest rate and no new systems integration.

The recipient receives a discount when paying off their mortgage balance, which for them restores mobility while allowing the credit union to redeploy its capital into new originations.

"Nobody wants to be first," Michael Abraham, chief strategy officer of GLCU and CEO of Mortgage Forward, said. "But once word gets out, every credit union in the country is going to be fielding the same question from their members: why don't we have this? That's when the floodgates open."