"For the past several years, the U.S. housing market has faced an unusual constraint: not a lack of buyers, but a lack of sellers willing or able to move. Millions of homeowners remain rate-locked, holding mortgages originated in 20202022 at interest rates between 2% and 4% (Federal Housing Finance Agency; Freddie Mac Primary Mortgage Market Survey). While home values have risen, the financial penalty of selling and repurchasing at today's 6%7% rates has discouraged mobility, suppressing inventory and transaction volume nationwide (National Association of Realtors; HousingWire)."
"Instead of retiring the mortgage entirely, the borrower funds a portfolio of highly secure assets typically U.S. Treasury securitiesthat generate sufficient cash flow to make the remaining loan payments (Commercial Mortgage-Backed Securities market practice; Securities Industry and Financial Markets Association). Once that substitution is complete, the borrower is released from ongoing responsibility for the loan, while the lender or bondholder continues to receive scheduled payments."
Millions of homeowners remain rate-locked in low fixed-rate mortgages from 2020–2022, creating a supply shortage because selling and repurchasing at current 6–7% rates imposes large financial penalties. Demand for housing exists, but inventory and transaction volumes remain suppressed. Defeasance allows a borrower to replace a loan’s payment stream by funding a portfolio of high-quality securities that generate the remaining payments, releasing the borrower while preserving scheduled payments to lenders. Defeasance is standard in commercial mortgage-backed securities and could be adapted to certain securitized residential mortgages to preserve low-rate loan value and increase homeowner mobility.
Read at www.housingwire.com
Unable to calculate read time
Collection
[
|
...
]