Oil prices plunged last night on credible rumors that the U.S. and Iran are close to an agreement to end the war.
And, as I’ve been noting since the war started, as goes oil, so go rates. Rates fell sharply
Portable mortgages are loans that homeowners can transfer from one home to another.
Naïve housing analysts often float portable mortgages as a great way to free up “locked down” inventory (homes with very low rates that owners do not want to lose – so they refuse to sell).
Homeowners with very low rates also often get excited by the prospect of portable mortgages.
But they are a dumb idea that we’ll never see come to fruition.
- They will result in HIGHER interest rates. The mortgage industry depends on “securitization” – where loans are pooled into mortgage-backed securities and priced based on the specific property used as collateral. If a mortgage became portable, the underlying collateral and its risk profile would shift, undermining the securitization structure. Investors would demand higher yields to compensate for increased uncertainty, creating long-term upward pressure on mortgage rates overall.
- It won’t help existing mortgage holders. Existing mortgage holders are already part of a securitized mortgage pool. And investors bought those mortgage bonds, based on a specific set of rules and collateral. Those mortgages can’t just be declared “portable” without upending all of the rules the exiting investors are relying on.
- The lock-in effect is overstated. Yes, people don’t want to move if it means getting a higher mortgage rate. But the bigger reason people are not moving is just trends, as people have been staying in their homes longer for years now, per Logan Mohtashami. If that were not the case, we would have seen surges in inventory when rates dipped in 2012, 2014, 2016, 2019, etc. People are just moving way less now – something I have blogged about recently: People No Longer Move For Jobs.
- There will be a “gap problem.” If someone has a $400,000 mortgage at 3% that he wants to port over to a $1 million home, he will need a $600,000 down payment. If he only has $200,000 in cash, he will have to get a $400,000 second mortgage – at a much higher rate than the going rates for first mortgages. This would make his portable mortgage much less valuable – if even valuable at all.
I could list more reasons, but this is sufficient.
Suffice it to say, we’re not going to see portable mortgages – and it is a good thing because they’d just push up rates.
