Fifty-year mortgages … assumable mortgages … portable loans. They’re not gonna move the housing needle, at least not much, an independent bipartisan think-tank says. What’s needed is, in a word, more, as in more houses, the Urban Institute maintains.
“The real solution to affordability is to increase supply,” it says in a new report.
The idea for 50-year mortgages has come and gone, but assumable loans and portable loans are still on the table. Assumable loans are those in which a qualified borrower can take over the seller’s remaining loan balance at the seller’s presumably lower current rate. Portable mortgages allow the borrower to transfer their existing mortgage balance and interest rate to a new property.
As for assumable mortgages, buyers might be willing to offer more for the house because they could save hundreds a month on their house payments if they are permitted to take over the seller’s mortgage. And the higher price could induce the current owner to sell.
But assumables would need considerable accommodations to be an attractive option, the Urban Institute says. They also are likely to result “in higher monthly payments for new borrowers who aren’t assuming existing mortgages, and would not dramatically alleviate housing supply concerns.”
The think-tank outlines several shortcomings for assumable mortgages: They would apply only to future loans; appraisal issues and downpayment constraints would limit their appeal; current mortgage rates would increase if future lock-ins are prevented; and they would not solve housing supply issues.
The Institute believes portable mortgages are the “more promising product to spur housing market liquidity” But, it says, “they face many of the same disadvantages” that confront assumable loans.
While portable loans could alleviate the lock-in effect that is blamed for keeping many people in their homes, allow owners in distress to sell more easily, and would reduce origination costs, they come with several shortcomings, the Urban Institute warns.
Like assumable mortgages, portable mortgages would apply only to new mortgages as the terms on existing securities cannot be altered. Furthermore, additional funding — perhaps a second lien — may be needed to make up for the difference between the current balance and the price of the new residence.
Unfortunately, the Institute says, neither assumable or portable mortgages “would increase the net housing supply, as almost every seller would need to buy a replacement house.”
“The real solution to affordability," the Institute argues, “is to increase supply by catalyzing new construction through changes that loosen zoning code and building regulations. The sooner policymakers address supply through cheaper and more dense construction, the quicker we can address the nation’s affordability crisis.”
