Jerome Famularo
Federal Housing Finance Agency Director Bill Pulte recently grabbed headlines for floating two “innovative” mortgage ideas: a 50-year mortgage and mortgage portability. The 50-year fixed-rate mortgage idea has already drawn plenty of deserved criticism. But portability, despite receiving far less attention, also deserves more scrutiny.
The flaws with a 50-year mortgage are easier to spot. Extending the mortgage doesn’t make homes cheaper; it simply lowers monthly payments in a way that encourages more buyers into the market. The predictable result would be higher home prices, more interest paid, and greater exposure to negative equity when prices drop. A borrower locked into a half-century mortgage builds equity so slowly that almost any downward price movement threatens to put them underwater. Rather than promoting stability, the 50-year mortgage would amplify leverage and risk.
Portability appears more promising at first glance. The idea is that homeowners should be able to take their existing mortgage, and its low interest rate, with them when they move. This would supposedly help people who feel “locked in” by the gap between their existing low-rate mortgage and today’s relatively higher rates. If they could move the old loan to a new property, the logic goes, the homeowner would be more likely to sell, increasing inventory and easing today’s tight housing conditions.
However, this logic also falls apart under scrutiny.
Portability Is Unfeasible, and Its Impact on Inventory Is Ambiguous
The modern mortgage market is built on securitization, not portfolio lending. This means that banks typically do not hold mortgages for 30 years. Soon after origination, loans are securitized into mortgage-backed securities, often guaranteed by Fannie Mae or Freddie Mac (known as agency MBS). Investors buy these securities because they promise predictable cash flows tied to a specific pool of loans on specific properties. Agency MBS, like Treasury securities, are backed by the American taxpayer, meaning investors are insulated from borrower default risk and therefore accept lower yields, which theoretically lowers mortgage rates.
A portable mortgage threatens to blow up that predictability. If a borrower could move their loan from one property to another, the underlying collateral’s risk profile would change. That feature is fundamentally incompatible with how MBS are typically structured. Investors purchase securities with well-defined parameters, not a bundle of loans whose risk profiles can be shuffled at the borrower’s discretion.
Some countries, such as Canada and the United Kingdom, have portable loans. But in these countries, mortgage terms are much shorter, and the fixed-rate portion of the mortgage is typically even shorter. Critically, mortgages in these countries are also typically held on bank balance sheets rather than as securities, which makes portability more feasible. In the United States, however, this is much less prevalent, so the mortgage finance system would have to undergo radical changes.
Even if portability were currently feasible, its impact on housing inventory is unclear. It is true that some homeowners currently “locked in” by low rates would be more willing to sell. But many of these people would also be buyers. That is, the same person who lists their home because they can keep their low-rate mortgage also becomes a buyer, one who shows up to compete for the inventory already on the market. Put differently, both supply and demand would increase.
The result is ambiguous at best. More listings would likely go on the market, but demand would likely increase for those listings, too.
The Real Problem Is the 30-Year Fixed-rate Mortgage
Neither of Pulte’s proposals addresses the real source of today’s lock-in effect: the dominance of the 30-year fixed-rate mortgage (FRM). This product is much rarer globally. It dominates in the United States largely because of government intervention, particularly through the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, and the Federal Housing Administration (FHA), and Ginnie Mae.
In general, commercial banks have always been hesitant to hold large amounts of 30-year FRMs on their balance sheets because doing so exposes them to enormous interest-rate risk. The 30-year FRM is ubiquitous largely because Fannie Mae, Freddie Mac, and Ginnie Mae (with the FHA) can buy, guarantee, and securitize these loans while backed by an implicit federal backstop. As of Q4 2024, FHA’s market share of home purchase loan originations was 19 percent, while Fannie and Freddie’s combined market share was 43 percent of home purchase loan originations.
Earlier this year, Pulte suggested that GSE privatization was “not a top priority.” But fixing the distortions created by these entities is exactly what the housing market needs. Their government-backed guarantees create artificial demand for long-term fixed-rate mortgages, crowding out better home financing options. A market without GSE dominance could theoretically still offer 30-year FRMs, but they would not be the default for most homebuyers.
The current GSE-dominated system forces borrowers, lenders, and investors into a mold designed by two federally backed giants, whose risk is borne by taxpayers. It results in fewer mortgage products being offered by private market participants.
A genuinely private system would encourage an innovative mix of mortgage products that respond to consumer needs, make lenders accountable for risk, and adapt to changing market conditions with resilience. Instead of band-aids and government solutions to government failures, the focus should be on dismantling the GSEs.