Predatory lending, collateral issues, high fees: Are portable mortgages too risky?

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“It is also comparable to GE making a light bulb that never burns out,” Hawkins said. “Why would they do that unless they were going to charge 10-20 times the initial cost to buy one? They would essentially be cutting off all their future business. Same with issuing a portable mortgage.”

A portable mortgage would be priced like a high-end item rather than the run-of-the-mill conventional mortgages currently sold in the secondary market, Switts believes.

“There is no financial incentive for the lender, and if there were a financial incentive, the consumer would have to cough up the cost for the transfer and for the actual product to exist,” Switts said. “Our system is designed in such a way that if we keep as much cookie-cutter as possible, the consumer pays less, and money flows quickly. Portable loans will cost more, and will resemble a luxury market portfolio.”

Switts said these drawbacks don’t mean that assumable and portable mortgages shouldn’t exist. It just means that brokers will need to educate borrowers on the risks and costs involved. It also doesn’t mean that adding these loan options, along with 50-year mortgages, will magically fix affordability issues.

“Should these options exist? Absolutely, they should,” she said. “Just keep in mind, everything has its cost to manage and orchestrate. Is there a viable market for either of these? If a lender chooses to specialize in exotic or luxury products and a small percentage of the population is willing to pay for that, then it works. Are either of these options the solution? No, but more options should exist for the primary homebuyer.”



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