Trump proposes 50-Year Mortgage

[Calheel]

So really people would just be renting their home forever and never own it.

No, no, no.

If you stay in a home for 10 years on a 30 year mortgage, the vast, vast majority of your equity comes from price appreciation, not principal pay down.

The key to wealth generation from home ownership is getting to leverage price appreciation in a very large asset with a very small down payment (while being protected from downside risk due to anti-deficiency laws and tax-favored interest payments).

The renter analogy is not apt. If you rent a house for 10 years, you do not get to capture any of the price appreciation in the market.

 

[Calheel]

The lenders would also have some risk regarding the location of the property. For example if the first home is in Charlotte or Raleigh and the borrower moves to the suburbs of Las Vegas or a condo in South Florida then there may be a different risk profile with the property.

Presumably, the regulations would require there be a significant delta between price and debt in the substituted security (e.g. 70% LTV) to protect the lender from such risk. You could also exempt certain highly volatile markets from the transfer.

 

[Enigma94]

I'm not so sure there would be a premium, at least after the product has been on the market for a while and folks get a better idea of the risk. If you look at it as correctly pricing the risk of the mortgage, you have a person continuing to pay a mortgage that they've been paying for a few years versus that same person taking on a new and often times more expensive mortgage. My investment thesis would be that the person continuing the same mortgage payment would be a better risk than the person taking on a new mortgage payment.

It's not just repayment risk, there is also term risk. That's why a 10-year US Treasury note trades at a higher rate than a 5-year UST even though the repayment risk profile is identical.

 

[gtyellowjacket]

It's not just repayment risk, there is also term risk. That's why a 10-year US Treasury note trades at a higher rate than a 5-year UST even though the repayment risk profile is identical.

You're right about 30 vs 50 yr loan. But your post, and my response, was discussing the portable mortgage idea.

 

[Enigma94]

You're right about 30 vs 50 yr loan. But your post, and my response, was discussing the portable mortgage idea.

My point was that the market will price in the fact that a portable mortgage will have a longer shelf life than a traditional mortgage. Regular mortgages tend to pay off on average around 7 years, but portable mortgages will by nature be outstanding for longer periods.

 

[superrific]

Portable mortgages are a one-way rachet down on the coupon, so my guess is that there will need to be a bigger spread between mortgage rates and US treasury interest rates.

 

[BlooVooDoo]

No, no, no.

If you stay in a home for 10 years on a 30 year mortgage, the vast, vast majority of your equity comes from price appreciation, not principal pay down.

The key to wealth generation from home ownership is getting to leverage price appreciation in a very large asset with a very small down payment (while being protected from downside risk due to anti-deficiency laws and tax-favored interest payments).

The renter analogy is not apt. If you rent a house for 10 years, you do not get to capture any of the price appreciation in the market.

How long have you lived in California?

 

[Calheel]

How long have you lived in California?

30 years.

 

[nycfan]

 

[Bobfripp]

Don't you hate it when illegal immigrants can afford to buy houses and most American citizens cannot? Those aren't bags of fentanyl the illegals are carrying! No sir, it's bags of ca$h that they're using to buy up all the affordable housing so our American young'uns cannot afford a mortgage!