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Watching Donald Trump and the Republicans respond to demands to lower the cost of living is like watching a baby try to figure out how to work a Bunsen burner: You know it’ll be unsuccessful and probably outright dangerous. Such is my reaction to the concept of a 50-year mortgage, which Trump and his unofficial paperwork spy Bill Pulte have been pitching.
The idea looks like a traditional Trump scam, attempting to prey on assumptions about the innumeracy of the American public. When people say they can’t afford to buy a home, they often mean that they can’t afford the monthly payment. Well, if you make the payment terms longer—50 years instead of 30—that’ll bring down that monthly rate, right?
Well, yes, but not by much. A 30-year fixed-rate mortgage on a $400,000 home with a normal 20 percent down would, in today’s rates, cost $2,289 a month, says the trusty mortgage calculator. A 50-year mortgage, all else being equal, would cost $2,054 a month. But all else would not be equal, because with longer terms the cost of the mortgage rises, particularly because of a higher interest rate, as we see in the difference between 15- and 30-year mortgages. (The home sale price would also likely inch up.) The real difference in the monthly payment would probably be more like $100 a month.
That’s fine but certainly not world-changing. Meanwhile, you would pay more than twice as much in interest over the life of the loan, from around $369,200 to $762,300. And you would have much less equity throughout the payment schedule, which matters should you decide to sell.
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People get a choice of mortgage terms, and they’re not quite as stupid as Trump thinks his Trump Steaks shoppers or Trump University students are. The 40-year mortgage term has been available for years, with little take-up. The median age of a homebuyer right now is 59, and even for a first-time homebuyer, it’s 40. Nobody really wants to be in debt until they die.
Plus, “qualified mortgage” rules put in place to prevent exotic mortgages that enrich lenders (which this most assuredly does) currently bar secondary-market giants Fannie Mae and Freddie Mac from buying these loans, which would make the interest rate spike even higher. Pulte is currently the chairman of both Fannie and Freddie (an odd thing to be while also serving as the director of the Federal Housing Finance Agency, Fannie and Freddie’s chief regulator), so he could try to maneuver a way to make them buy 50-year mortgages. Pulte has already removed minimum credit score requirements from Fannie Mae’s case files, meaning that the agency could potentially take on loans from riskier borrowers.
That leads us to the next point: building risk in the housing market. Foreclosure starts are up 20 percent year over year as of October and have been rising for eight months, a sign of creeping precarity among ordinary Americans. While overall foreclosures are still below historical averages, the trend is not at all good. One way to keep that trend rolling is through financial engineering that throws people into mortgages they can’t handle in the name of “affordability.” A case in point: We’re seeing adjustable-rate mortgages making a comeback, even after their collapse in the housing bubble years.
To meaningfully drop housing prices and sustainably reduce payments rather than add financing costs, Trump would have to reverse his entire domestic policy program, because it’s the higher cost of materials due to tariffs and the difficulties of finding a labor force due to deportations that account for the stubborn price level. Mortgage interest costs also remain high, in part because inflation has created hesitancy from the Fed to lower the federal funds rate.
Slower demand for homes may actually achieve the lower prices Trump seeks, but I don’t think he wants what might go along with that: higher unemployment and a recession.
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