Will The “MOVE” Act To Make Mortgages Transferable/Portable Explode Transaction Numbers?

Agents nationwide are praying for “portable mortgages” – that can be transferred from home to home.

This would ostensibly alleviate the dreaded “lock-in” effect that is keeping homeowners with low rates in their current homes – and ostensibly keeping transaction numbers at record lows.

Homeowners are “locked in” because they don’t want to move and give up their 3% mortgages.

So, when news of the recent MOVE (Making Ownership Viable for Everyone) Act surfaced, many agents were enthused by its potential to “unlock” so many potential sellers who will then become buyers.

But – before we get too excited, let’s dig into this a bit.

I. What the MOVE Act Would Do

It would let homeowners transfer their existing mortgage rate, term, and balance to a new property when they move, rather than losing their low rate and having to originate a whole new loan at current rates. It would also require Fannie Mae and Freddie Mac to purchase these “portable” mortgages.

II. Why The Industry and Existing Mortgage-Backed Security (MBS) Holders Will Scream Foul

1. They bought those MBS under the assumption that the mortgages would pay off within a certain period, as very few mortgages are held to maturity. Making mortgages portable would extend their terms, since they would not pay off when borrowers move. Investors view longer terms as riskier, so MBS holders would effectively be saddled with a riskier investment than they contracted for.
2. The collateral would be changing too. The MBS holders bought the MBS knowing exactly what collateral underlies the mortgage. Having that change midstream without the MBS holders having a say is also unfair.
3. Covering shortfalls when mortgages are too small is also an issue. If a portable mortgage falls way too short, buyers will have to get second mortgages (with much higher rates than available first mortgages) behind the portable mortgages. This makes the economics less appealing, and it adds to the risk.

III. Is The Lock-In Effect Even A Thing?

Logan Mohtashami says it is not – or that it is at least greatly overstated:

1. People move for “life reasons,” not because of rates. Life reasons include change in family size, divorce, job transfer, etc.
2. The data do not support the lock-in thesis. For example, we’ve seen inventory rise sharply despite higher rates in previous cycles. And – we did not see a flood of inventory when rates plummeted in previous cycles, such as post 2013-2014, or post 2018-2019.
3. People are staying in their homes longer for other reasons. One reason is that homes are larger and nicer and they meet family needs longer.
4. Broader affordability is the issue, not just mortgage rates. Home prices, insurance, and property taxes are all way up.

IV. Will The Law Even Pass?

It is not likely – at least not in its current form.

First of all – it has not even passed the House of Representatives – and even that will be a slog once industry lobbyists do their work.

But assuming it passes the House, it will then go to the Senate, where everything (except Mitch McConnell, apparently) goes to die.

Best case is probably a watered-down version that lets new Fannie/Freddie loans be portable.

But – who cares when rates are in the mid-6% range?

And remember – none of this applies to non-QM or Jumbo loans.

CONCLUSION: Sorry agents, this dog probably won’t hunt.