What the Trump administration's 50-year mortgage plan could mean for homebuyers - CBS News

On November 10^th, CBS News broadcast the story about the 50-year mortgage proposal from FHFA Secretary Bill Pulte – see link below.

https://www.cbsnews.com/news/trump-50-year-mortgage-loan-bill-pulte-cost/

Several Land Title Association Members had a conversation about this proposal via email.  With their permission, it is reprinted below.

NOTE – All statements are the sender's and do not reflect the opinion or the view of the sender's company or NYSLTA.

BOB TREUBER, NYSLTA EXECUTIVE  VP

I'd like to see an email-debate between two people on opposite sides of the 50-year mortgage.

Who benefits? Homeowners or Lenders?

Is it good for Title?

KEN WARNER, VP & Senior Counsel LandStar Title Agency

How we look at a 50-year homebuyer mortgage may largely depend upon the amount of risk we think a homeowner should be allowed to take vs. how much protection we think they need.

 Some fear that if people can suddenly afford a bigger mortgage, then more people may compete for housing, thereby causing home prices to rise. Others fear that if homeowners don’t substantially pay down mortgage balances over time, they are more likely to go into a negative equity situation when home prices eventually dip. 

 Homeowners with negative equity could find themselves unable to sell or refinance.  Lots of negative equity could destabilize both the housing and mortgage markets.

 The reality is that most people who have a 30-year mortgage won’t keep it forever and won’t pay it down much in the early years.  Even in a rising interest rate environment, most people will pay off their 30-year mortgage on sale or refinance within 7 to 10 years.

 A 30-year $100,000.00 mortgage at 7% paid for 7 years will have a balance of approximately $91,147.38

A 50-year $100,000.00 mortgage at 7% paid for 7 years will have a balance of approximately $98,017.71

Do we trust home buyers to use the increased purchasing power associated with a 50-year mortgage prudently?  Most residential mortgages can be prepaid, in whole or in part, at any time without penalty so a homeowner with a 50-year mortgage is free to make extra principal payments at any time. 

 We also need to consider whether the mortgage crisis of 2008 and our experience with negatively amortizing mortgage products taught us that homebuyers are not to be trusted with the assumption of increased risk.

BILL COLLINS, DIRECTOR OF TITLE INSURANCE, FRONTIER ABSTRACT & RESEARCH

Besides the likely increase in sales prices that Ken pointed out, a 50 year mortgage seems like it would have a significant “tail-end” problem.  Assuming a 30 year old couple when purchasing a house, they would be around 60 when a 30 year mortgage is paid off, getting ready to retire and use their equity to fund their retirement.  If they had  a 50 year mortgage, they’d be looking at 20 more years to pay it off- and it’s VERY unlikely that they’d be working that long to do so.  We’d be looking at a significant rise in mortgage delinquencies and foreclosures and an large increase in financial distress among elderly homeowners.

The 50 year mortgage is really just a prescription to keep homeowners permanently in debt.

MATT CAHILL, VP & CORPORATE UNDERWRITING COUNSEL, FIRST AMERICAN

Dan Buchanan plugged it into ChatGPT to see what it had to say about a 50 year loan.

Comparison summary

Bottom line

Stretching the loan from 30 to 50 years lowers your monthly payment by about $250, but nearly doubles the total interest — roughly $424,000 more over the life of the loan.

That’s a very expensive way to buy smaller monthly peace of mind — sort of like paying for Netflix for 20 extra years, but you only get reruns of Your Loan Statement.

BILL COLLINS

Lenders (and investors) would have to price that risk (that borrowers are VERY unlikely to be able to work long enough to pay off their debt) into their interest rate  calculations, so the interest rate on a 50 year seems like it would be significantly higher than a 30 year. Possibly high enough that it would offset any monthly payment savings on the 50 year.  

KEN WARNER

Matt,

 There is also a big difference in total interest paid between a 15-year mortgage and a 30-year mortgage.

 Where do you draw the regulatory line in protecting homebuyers?

 In “small commercial mortgage loan world”, interest only loans are typical.

RICH ESTRELLA Esq., SENIOR VP & NYS AGENCY MANAGER,FIDELITY

Very interesting discussion and thank you all for your well reasoned thoughts.

 After listening to the grown ups speak, I would think it makes no sense for someone to try and keep a 50 year old mortgage to maturity as Matt pointed out.

 Ken pointed out that after a 7 year repayment between a 30 year and 50 year mortgage the difference in principal balance was only a few thousand dollars so it appeared acceptable for someone to take a 50 year old mortgage and then refinance it. But I think taking a 30 year mortgage with a 7 year arm and refinancing it would be better option because your principal balance would be less.

 So I don’t see the benefit of a 50 year old mortgage

JAMEDS SCATURRO, AVP BUSINESS ADVISIOR, NY AGENCY FIDELITY

Bingo Bill ! The 50 year would easily be 60bps higher. If not a full point. You can't do the math with the same rate as a 30. Same as you can't do a 30 with a 15 year rate.