In recent news I have noticed reports that the supply of houses for sale is much lower than the demand, and that this problem is accelerating. Interest rates are over 7%, and people are not selling their existing home because they can’t get a comparable low rate on a new mortgage. Can you blame them? Their monthly payments would go up dramatically. In fact, 85% of all existing mortgages carry a rate under 5%. That means that most of these folks, and their homes, are out of the market. This forces prices on the few houses being put up for sale to be much higher. Consequently, most existing lower priced homes are non-existent. Cash only buyers are bidding to buy the few homes that appear in the market. A vicious circle. We are trapped in the web of success that kept rates low for twenty years.
Real estate brokers, bankers, potential home sellers, and potential buyers are all throwing their collective hands in the air. What can we do about this? The market is the market, and as long as interest rates remain high, they know that traditionally they have no solution. However, we are America, and in America, when a problem arises, we think out of the old box and find a solution.
The short answer could be “mortgage porting”. There is a clause in most home mortgages written that allows for this. Porting simply means that the financial balance of a mortgage, along with its existing interest rate, terms, and payment length may be transferable to a newly purchased home. This method of financing is common in other Countries, including Canada, and it works very well. It makes the mortgage people centric rather than property specific. Why is this not popular in the United States? Several reasons come to mind. First, mortgage brokers may not get paid on the “ported amount,” and they have quite a lobby. Second, the rules of each financial institution that “owns” the mortgage can be different and may need to be modified. Third, government must also modify its rules to accommodate and facilitate the process. All of these could be overcome. Lets be clear. The value to the lender has always required both great credit and appraised value, and that remains constant when porting.
Example. If a borrower owes $300,000 on home, that borrower can take up to that $300,000 and carry it forward to a new mortgage loan and simply use the new property for collateral. The borrower will pay, at the lender’s discretion, a one-time “fee” for the carry forward/transfer privilege assuming the payment history, job history, property qualifications and appraisals, and all other credit measurements tools remain acceptable, the lender will allow the mortgage to follow the borrower to the new purchase. The buyer could, again with lender approval and possible fees, also be allowed to extend the payback period on the transferred mortgage amount to the original term, again assuming that the criteria requirements remain consistent. If the new homeowner needs to borrow more money to complete the purchase, that balance will be financed at prevailing rates unless the buyer chooses, and the lender allows, a buy down of the rate. As a result, the new “blended” mortgage payment will be much more affordable for the buyer, and just as important, no added expense to the lender.
This simple move will accomplish a great deal in solving current marketplace problems. Demand for existing homes will quickly approach the available supply again. Existing home prices will begin to moderate and drop. Existing homeowners will again be able to move up the housing ladder because their low interest mortgage rate will carry over to the new purchase. More first-time buyers will be able to purchase the lower priced vacated homes that become available and begin their journey into home ownership at much lower prices. It will even help lower inflation.
The rise in home prices, caused mainly by the inability of current mortgage holders to get new low interest mortgages if they sell, will moderate. Banks, home buyers, homeowners, and the real estate industry all win. Business will again boom. Are there regulatory issues to overcome? Of course. Are there rule changes that need to be overcome? Of course. Every time we think outside the box, we create problems that must be solved, but this is a solution that allows our middle-class real estate market to survive as we continue to fight inflation. Risks and rewards to both borrowers and lenders remains constant.
Please drop me an email with any questions or comments. I would love to hear from you and have you join with me to make Maine a better place for all families.
Joseph Martin, Republican Candidate for Maine State Senate District 19
Opinion pieces reflect the views of the individual author, and do not reflect the views of the Daily Bulldog, Mt. Blue TV, or Central Maine Media Alliance. Publication of an opinion piece does not equate to endorsement of the content of the piece.