Could transferrable mortgages unfreeze housing? Real estate pros weigh in

He stressed that the U.S. mortgage-backed securities market relies on long-term, fixed-rate loans with highly predictable performance, something portability threatens to destabilize.

“Portable mortgages, in addition to other issues, would totally destroy the pricing models current used by MBS’s in their investor presentations,” Cantrell said. “The portable mortgage is also predicated on widespread lender adoption and the lender being willing to trade one asset for another.”

Why international models don’t easily translate

Other countries often require that borrowers remain with the same lender and complete the sale-and-purchase cycle within a tight window.

Cantrell says the U.S. would face similar, if not stricter, constraints.

“The devil is how the details are finally worked out,” he said. “If the same parameters are required that are used in other countries, the rest of it is up to the fees charged by the investor/lender – and those are sure to be high. This concept really only works when the homeowner is ‘buying up’ since any deficiency would become immediately due or the lien would not be released on the house being sold.

For sellers looking to move laterally or down in price, portability would offer little benefit. The borrower would need to cover any shortfall and still supply a down payment on the new property, Cantrell added.

Leonard Steinberg, chief evangelist at Compass, agreed about prospective complications.

“Move-up buyers may have difficulty affording the additional cash for financing needed as prices have gone up in many areas since mortgage rates went up,” he said. “Those buying similarly valued homes may find this most useful.

“Anything that helps the consumer be in a better position to transact  — and afford  — a move, the better for all. But portable mortgages often have higher initial rates. Most will want to keep their ultra-low rate and allow it to be portable. Agents always benefit when their clients are in a better position to buy and sell.”

Affordability and rate lock

Although portable mortgages are often promoted as a solution to rate-lock paralysis, Cantrell argues the real barrier to mobility is the surge in home prices over the last decade.

“Overall, I don’t think that rate-lock is as big an issue as the unrealistic home price increase we have seen over the past several years, caused purely by the low cost of money. The government creating massive amounts of money out of thin air,” he said. “In our area, from 2015-2023 we had a 100% increase in the median home price. Affordability is a much bigger problem than rate-lock.”

He added that homeowners hesitate to list not because they’re stuck with a lower rate, but because they can no longer trade up meaningfully.

“When a seller cannot sell, and then buy something better with the equity accumulated, it’s a price/affordability issue much more than a rate issue,” Cantrell said. “It’s not so much the rate that can’t be replaced that restricts activity as it is the fact that a seller can’t better themselves by selling.

“Doing so is a lateral move more than a move-up. The only way to really combat affordability is by bringing costs down.”

Donnie Samson, CEO of Samson Properties and head of The Donny Samson Team headquartered Virginia, said he’s a huge proponent of portable mortgage use.

“I’ve discussed the idea with (National Association of Realtors) leadership as to how much I think that we need to push for this as much as possible,” he said. “There’s thousands and thousands of homeowners that need a bigger house, want a bigger house, or want to move to that different neighborhood for their kids, but trading in the 3% to 6% just doesn’t make sense if they’re staying in the home that they’re in.”

While not discounting ongoing pricing and affordability issues, Samson said rate lock remains a key barrier in restoring what’s considered normal home transaction volume.

“(Rate lock) really chokes the ability for buyers to get into the marketplace,” he said. “A study recently showed the average age of first-time homebuyers is 40 years old, which was the highest it’s ever been. Well, it’s because when the affordable inventory becomes available, nobody’s selling those homes to move up, because they’ve got 3% interest rates. Even if they are moving up, they’re keeping (their current home) as a rental. The lock-in effect is real.”

What portability would mean for agents and brokers

Cantrell warns that portability would require real estate agents and brokers to dramatically expand their mortgage expertise.

“Since a portable mortgage only works with the same lender — meaning the same lender who has the low-rate mortgage must be the same lender on the new house — it would require that either all lenders offer this, or that agents have lender relationships with as many of those offering it as possible,” he said. “Not all lenders will do it, so when an agent encounters a home with a lender who won’t do it, then the entire concept is irrelevant.”

Specialization might emerge, but it would be difficult given how many agents lack technical mortgage knowledge, said Cantrell.

“Training on this for the individual agent would be particularly problematic since most lack a basic understanding of mortgage structure as it is now,” he said. “That’s why so many were caught flat-footed by the rate run-ups a few years ago. They did not know how to read the leading indicators and prepare their clients or business. Most brokers only know slightly more and consistently defer to the lender on any question regarding mortgages.

“(Agents) would need to become near experts so they don’t get in the middle of a deal. Things could go astray because the current lender refuses to port, and the seller cannot buy without it.”

Market impact may be limited

Despite growing conversation, Cantrell remains skeptical that portability would change the U.S. market in any significant way.

“For it to have any impact at all, there would have to be widespread, universal lender acceptability, and the agents would have to educate themselves on who does what and how,” he said. “I don’t see either of those happening very fast. I also do not see it having a big impact on the market at all and because of the complexity.”

Operationally, brokerages that do not handle mortgages directly would see little impact, but Cantrell said firms offering in-house lending could face serious complications.

“If a brokerage does engage in mortgage services, it could be quite problematic on the compliance side, and until widespread adoption takes place, could be the cause of many deals imploding,” he said.

Who stands to benefit?

Cantrell says portability would not help most segments of the market.

“Luxury buyers usually have larger equity or are dealing in cash,” he said. “Relocation clients would only be able to utilize this product if they used the same lender, and since there is usually a time limit of 30-120 days to buy something else, this could negatively impact relocation clients.”

Move-up buyers are the only group that stands to gain, and even then only under specific conditions, according to Cantrell.

“The only ‘if’ here is if the move-up buyer is willing and able to purchase something more expensive than what they just sold,” he said. “If they move laterally, or down in price, this product would do them no good.”

Steinberg said anything the industry can do to help buyers and sellers is worthwhile.

“Like everything in real estate, what is good for some won’t be good for others,” he said. “I personally believe a portable mortgage has both pros and cons long-term. Right now, we have to navigate the big short-term challenges.

“Sellers that are either attached to their low rate, convinced rates will come down over time and are waiting and those who simply cannot afford more because of higher rates — they could be beneficiaries of these transferable mortgages.”

Samson said the perception of future interest rate drops among buyers also feeds into subdued transactions.

“There’s a lot of people sitting on the [sidelines] right now because they hear that interest rates are going to drop more,” he said. “It’s slowing down those buyers a little bit because they’re like, ‘Well, I want to time it just right at the bottom of the market,’ which is crazy. You can never really time the interest rates completely perfectly.”