Moving America
Moving America - Mortgages, Mobility and Unlocking the American Dream
Download Moving America GPS hereThe American dream of home ownership, long a symbol of stability and upward mobility, has been out of reach for many people in recent years as interest rate volatility has created something of a paradox: the so called “mortgage lock-in” effect.
It goes like this: Millions of homeowners feel compelled to remain in their current homes to preserve the financial advantage of their low interest rates. This effectively locks them into a property that may no longer serve their changing needs. At the same time, many mortgage lenders currently hold large portfolios of loans earning below market rates.
This Citi Institute GPS report considers a potential solution to the gridlock that could benefit both borrowers and lenders by easing this constraint on the U.S. housing market.
Key Takeaways
Mortgage Lock-in’ is a Significant Economic Problem: Millions of homeowners are trapped in homes by low interest rates, hindering their mobility, stifling housing supply and creating a substantial drag on the U.S. economy.
Shared Economic Benefit Could be the Solution: The report highlights a new approach where lenders offer borrowers new mortgages at a rate between their existing low rate and current market rates, allowing both parties to share the economic benefits.
Win-Win for Borrowers and Lenders: This strategy frees borrowers to move without losing their advantageous mortgage rates, while lenders benefit from replacing lower-rate loans with higher-yielding ones, improving their portfolios.
Reinvigorating the Housing Market and Workforce Mobility: By easing the mortgage lock-in, the proposed framework aims to boost housing supply, foster greater workforce mobility and contribute to overall economic vitality.
- Widespread Implementation Requires Legislative and Technological Change: Extending this solution, particularly to the securitized loan market, would require legislative changes (e.g., defeasance), regulatory agreements and the leverage of new technologies like blockchain and tokenization to overcome complexities.