The Trump administration floated the concept of introducing a 50-year mortgage loan option as a move to help combat affordability challenges in the housing market. The idea has been met with skepticism from mortgage industry insiders, as well as political backlash.
An onslaught of strong reactions was sparked after President Donald Trump shared an image on Truth Social Nov. 8 of a poster, created by Federal Housing Finance Agency (FHFA) Director Bill Pulte, depicting portraits of Trump and President Franklin D. Roosevelt, side-by-side, with the title “Great American Presidents” above them.
Directly above Roosevelt’s portrait were the words “30-Year Mortgage,” referencing the introduction of this loan option during his administration, and while Trump’s image had “50-Year Mortgage” printed above it.
The next day, Pulte shared the following post on X (formerly Twitter): “We are laser focused on ensuring the American Dream for YOUNG PEOPLE and that can only happen on the economic level of homebuying. A 50 Year Mortgage is simply a potential weapon in a WIDE arsenal of solutions that we are developing right now. STAY TUNED!”
Neither the White House nor the FHFA had posted details about plans to create such a mortgage product on their official websites at the time of publication.
The indications from Trump and Pulte were met with some harsh bipartisan criticism from lawmakers and concerns expressed by some of the largest trade organizations representing professionals in the mortgage and real estate sectors.
A spokesperson for the Mortgage Bankers Association (MBA) provided Dodd Frank Update with a statement noting the organization’s greatest concern about a 50-year mortgage loan would be “that any affordability benefit … would be offset by increased borrower risk and slower borrower equity growth.”
“While the mortgage lending industry welcomes efforts to make homeownership more affordable and attainable for more Americans, the Qualified Mortgage (QM) rule specifically limits QM protection to loans of 30 years or less, and therefore lender willingness to offer a 50-year mortgage product is likely to be muted given that Fannie Mae and Freddie Mac are currently prevented from buying non-QM mortgages,” according to MBA. “Investor interest may also be limited given the expected higher prepayment, which will mean higher interest rates for 50-year loans.”
With home price growth expected to continue to slow, the association indicated that borrowers could experience slower equity growth, which would be especially impactful for those with longer loan amortization periods.
On the flipside, multiple housing finance experts have noted the extended loan option could also drive home prices up, negating the affordability argument presented by the administration.
National Association of Realtors (NAR) chief economist Lawrence Yun released a statement noting that while homeowners could still gain some equity from a 50-year mortgage “as long as these mortgages are soundly underwritten,” such loans would “not address the true cause of today’s affordability challenges.”
The concept of offering extended mortgage loan terms beyond the 30-year mark is not new, nor are the points MBA presented about the associated downsides.
In the 1980s, a handful of California-based bank holding companies authorized their subsidiary institutions to offer 40-year mortgage loans in response to double-digit mortgage rates at the time. A Washington Post article from 1989, titled “The 40-year mortgage is here, but lenders are wary of risks,” named a few subsidiaries that experimented with such offerings in other parts of the country, including Ahmanson, Great Western Mortgage Co. and Seasons Mortgage Corp. However, the 40-year loans failed to catch on outside of California – where home prices tend to be two to three times the national median, according to data published by California’s Legislative Analyst’s Office on Nov. 6.
As experts from MBA and NAR pointed out, the lower monthly payments associated with these longer-term loans were not viewed as sufficient to offset the increase in total interest to be paid over the life of the loans, coupled with slow equity accumulation. Experts indicated at the time that a 40-year mortgage would make the most sense for borrowers who planned to sell or refinance their home within a few years, which would “short-circuit the 40-year loan’s major drawback, namely, the extra interest payments that can drive up the cost of the loan by 25 percent or more if the loan is amortized over the full 40 years.”
Some California lenders introduced a 50-year mortgage option in 2005, generally offered as a variation on the 5/1 hybrid adjustable rate mortgage. Such loans are issued with an initial fixed rate for five years, which later adjusts according to a predetermined index. These loan products suffered from the same weaknesses as the 40-year mortgage option from an affordability standpoint.
Rather than a “game-changer,” as Pulte referred to his 50-year mortgage loan idea in another social media post, TD Securities’ head of U.S. rates, Gennadiy Goldberg, referred to it as “more of a stopgap Band-Aid to address affordability,” in a statement to Politico.