The idea of a portable mortgage - a mortgage the borrower could take with them at their existing rate and amount if they buy a new property - has been pitched as a possible solution to the housing crisis. With many homeowners locked in at rates in the 3% range and current rates around 7% this sounds like a great idea. The latest bill in Congress to create a portable mortgage, the Making Ownership Viable for Everyone, or MOVE Act, was introduced in the house by Rep. Thomas Kean (R-NJ) in June. It is still in committee and housing affordability has only worsened as mortgage rates climbed.
The big question is could the idea of a portable mortgage even work? According to an article on Realtor.com, the answer is no. The article says this would be difficult to implement and have huge implications for the overall housing market. Here is a quote from the article: "Realtor.com® senior economist Jake Krimmel says it could actually make the market less affordable.
'Investors of mortgage-backed securities in a world of portable mortgages would demand compensation for that uncertainty around a different pre-payment risk schedule as well as the new unpriced risk that comes from porting a mortgage to a new home," Krimmel says. "And those latter two new risks could translate into higher mortgage rates'."
This is pretty confusing if you aren't an economist but what he goes on to say is, "The U.S. mortgage market is built on securitization, where investors buy pools of loans priced against the specific homes behind them.
'A portable mortgage breaks that link by decoupling the loan from the home it was originated against,' Krimmel continues. 'It also removes the loan payoff that happens when a homeowner sells (called pre-payment), which makes the loans much harder to value in a securitized market'.
The U.K. and Canada both allow that. But their markets are different, Krimmel says. That's because their systems don't have built-in 30-year fixed-rate mortgages. Rates reset every few years and mortgage durations are shorter. And loans have pre-payment penalties."
Another point to consider is if the buyer purchases a new home and needs a larger mortgage than his current mortgage he would need a second mortgage. Lenders already charge a higher rate to be in second position on the property possibly negating the positive impact of the portable mortgage. So, while in theory this sounds like a good idea it may not work in practice.
