The year is 2076. America just celebrated her 300th birthday 🇺🇸 (the ageless Steven Tyler 🎸 performed), food is all grown underground in military-patrolled silos, & clones complete nearly every task on behalf of their human hosts (who rarely leave the house).

At a 3-story brick 🧱 building in Brooklyn, 90-year-old housing journalist James Kleimann 🧓 scanned his VR headset & made the final payment on the mortgage. Over the course of 50 years, Kleimann paid $4.15M(!) in lifetime interest 💰 on a $1.5M loan. (Also, it’s 2076 & we still don’t have flying cars. FFS.🚡)

By now you’ve heard that the Trump administration wants to introduce a 50-year mortgage via the GSEs. By stretching the payment over 50 years, borrowers could theoretically save a couple hundred $$$ a month & get their foot in the homeownership door. But does it make sense? Let’s explore.

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In high-cost markets like Brooklyn, many buyers don't expect to own their home free & clear. Instead, they think in terms of monthly payments ✅ & housing stability. It’s a hedge against rent prices. In plenty of other countries w/ super long mortgage terms, homeowners refi, upgrade or move every 7-10 years & the full mortgage term is rarely reached. Basically, even if you never pay off your mortgage, you're still capturing appreciation & tax benefits instead of paying rent. This is where it kinda makes sense.

Of course, borrowers w/ a 50-year mortgage would need many more years to establish equity & here’s where we run into problems. For starters, these are probably borrowers who are already crippled by school, credit & auto debt. There’s a fear that unscrupulous lenders would take advantage of uneducated/over-eager buyers who will then struggle w/ property taxes/insurance & won’t build equity, particularly in markets w/o much price growth. That would limit their ability to refi & would push up default risk. And besides, if home prices continue to rise, what problem has really been solved?

Now, to be clear, most borrowers today refi or move in 7-10 years & don’t touch that much of the principal anyway, so this proposal likely doesn’t change the actual dynamics from the 30-year that much. But there’s increased risk here & not much upside IMO.

“Yes, a 50-year mortgage may juice short-term sales, but it hollows out long-term ownership,” wrote Nicole Reuth. “I do not think it's fixing the system, it’s stretching the problem.”

1) From what I’ve seen, Pulte’s 50-year mortgage pitch has not been well received by the mortgage industry, which ironically would stand to make a lot of money on it, no?

2) Fannie & Freddie are not currently allowed to buy 50-year term mortgages. Their charters would need to be changed. Old heads may remember Fannie did a 40-year mortgage in ‘05 & the market didn’t embrace it. Even today there are some nonQM 40-year mortgages out there, but it’s relatively rare, comprising less than 1% of the mortgage market.

3) One capital markets pro told The Scoop that MBS investors would need a premium for such a long horizon, which would probably push the spread 50 bps or more above the 30-year mortgage. That would erode a lot (nearly all?) of the expected savings, right? 

Ultimately, I don’t think the 50-year mortgage is even going to happen. But for shits 💩 & giggles 🤣 , I asked executives & LOs for their thoughts about the proposed product & if they would sell it. Most said they would sell the 50-year, but they would make very clear to borrowers the pros & cons, particularly to FTHB who will want to buy a move-up home within 7-9 years.

“At the end of the day, as mortgage consultants, we review all options for the borrower, but the great LOs will tend to stay away from products that aren’t beneficial for their consumers,” said Union Home Mortgage’s Ravi Patel. “It’s no different than selling against bond/state programs w/ higher rates & fees.” 

“It’s nearly an interest only loan,” said UMortgage’s Tyler Hodgson. “As long as the borrower understands that, & doesn’t have plans to sell for a while, they still get benefits of home appreciation & better cash flow.”

Most of what has been proposed by the administration doesn’t move the needle (targeted changes to LLPAs) or carries limited upside & high risk for too many borrowers (50-year mortgage). If we’re not going to commit to establishing a real middle-class in America or even fix zoning/building codes/permitting, we can at least explore other innovative housing finance solutions.

To his credit, Pulte also said this weekend that the FHFA is looking into allowing assumable or portable mortgages, which IMO, has far more potential than the 50-year mortgage. On that note, Takara’s Jonathan Arad pointed to the Danish 30-yr bond buyback model of allowing borrowers to repay w/ a discount when rates rise as an option worth exploring. Compounded mortgages, which are a mixture of ARM & fixed under the first lien, is another alternative. Arad also suggested indexed products, both interest & principal (to CPI for example).

Hey, everybody! The Mortgage Scoop launched about 2 months ago & I’ve been blown away by the support. Thank you 🙏 so much. I wanted to share an important update about the business. We’ll be moving to a paywall starting Wednesday, Nov. 19.

Paid subscribers will get exclusive MWF newsletters packed with scoops, analysis & insights you won’t find anywhere else (plus some bonus content). Founding Members can lock in the price of $240 per year. Monday editions will remain free & open for all subscribers. Hit me up w/ any questions you might have. - James Kleimann

The conservatorship question has apparently been put to bed, according to Pulte. He said on Friday that Fannie & Freddie would remain in conservatorship but they’d sell a small stake. 

Scott Bessent & Howard Lutnick have previously said the government would sell less than 5% in an IPO for $30B. That would value the GSEs at roughly $600B. I am scratching my head trying to figure out how 2 government-controlled corporations w/ combined net worths of $173B, would be valued that highly, but let’s set that aside for now. The GSEs remaining in conservatorship provides stability for the mortgage market. Seems like the right move.

Pulte also said on Friday that the GSEs are looking to take stakes in tech firms. “We’re looking at taking equity stakes in companies that are willing to give it to us because of how much power Fannie & Freddie have over the whole ecosystem,” he said.

Blend managed to turn a tidy profit in Q3. But it wasn’t b/c of its mortgage division, where revenue declined 18% y-o-y & 4 “small clients” that contributed $200K a year in aggregate revenue left the platform. CEO Nima Ghamsari says those departures are strategic b/c they want big fish who are trying to solve the $11K problem.

"We are successfully trading low-value, non-core churn for high-value strategic platform expansion. The only noteworthy churn on the horizon is the expected roll-off from Mr. Cooper."

Ghamsari added that Blend's AI tool is an "entirely new operating model for lending. Our customers see this as the definitive answer to the industry's $11,000 problem. They are excited, & we are, too. This is the future, & we are building it with them."

Sources in the POS space say Blend’s tool is similar to what nCino & Floify are doing but both are embedded, not chat bots. My read on this is Blend is focusing on big banks, which will give competitors opportunities to pick up more small- & mid-sized IMBs. The Scoop broke the news in late September that Blend picked up Citi.

You know what happens when you assume? A creaky iBuyer w/ memestock vibes wants to cozy up to you?! Assumable mortgage platform Roam (which does pretty cool stuff actually) has a new partnership w/ Opendoor that will allow homes on the iBuyer’s platform to come w/ an assumable mortgage. It’s 1 among a string of big changes happening at Opendoor. 

The company has a new CEO & he’s made it pretty clear that Opendoor—until very recently—kinda sucked. Kaz Nejatian said that the old Opendoor was “slow & broken,” w/ “a dozen people whose only job it was to copy & paste information from PDFs into glorified spreadsheets.” He went on to say that the company had become so risk-averse they weren’t buying & selling homes. So what’s Nejatian’s plan? He’s going to “buy & sell lots & lots of homes quickly, be operationally excellent, & increase our value to each homeowner by launching services like mortgage, insurance, & warranty.”

Opendoor is getting back to its original mission: Allowing people to buy a house w/o dealing w/ anyone, even an agent. “We are shipping the buy now button for homes on the internet,” Nejatian said. “Right now, homeowners have to deal with a bunch of different companies, brokers, agents, a lot of different stuff to get what they need for a house. That doesn’t make sense. We have the internet. We’re going to fix this.”

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