The Case for Letting Mortgages Move With Us

What if you could move to a new home but keep the mortgage that you took out on the old one, with the same balance, interest rate and time remaining? You would probably be more willing to move. That would benefit both sellers and buyers. At the moment, the market for existing homes is partly frozen because people who have 3 percent mortgage loans don’t want to give them up for 7 percent loans on new homes.

Making mortgages portable sounds unrealistic. After all, mortgages are tied by contract to particular pieces of property. When I raised the idea with the Federal Housing Finance Agency, which oversees the big mortgage securitizers Fannie Mae and Freddie Mac, I got a one-sentence email back saying that the idea “is not under active consideration.”

The Mortgage Bankers Association also dismissed the idea. “We’re getting this question a lot, even from our own members,” Mike Fratantoni, the group’s chief economist, told me. Nevertheless, he said he couldn’t imagine that owners of securitized loans would go along with the idea. “I think the prospects are pretty dim.”

Actually, though, there’s a remarkable, recent piece of research that finds that borrowers wouldn’t have to pay the owners of their loans very much money to make it worth their while to port a loan from one property to another.

The report, which appeared in December in The Journal of Fixed Income, is by Jiawei David Zhang, Yihai Yu and Joy Zhang (no relation to David), all of whom work in securitized products research at MSCI, a company that provides market indexes and data analysis tools for investors.

I interviewed David Zhang, a managing director based in New York. He gave the example of a $500,000 mortgage that’s been packaged up with similar loans, turned into a security, and sold off to investors all over the world. Right now by law there’s no way to detach that loan from the property that serves as its collateral and reattach it to a new property.