Why Subsidizing Boomers to Downsize Might Actually Work
The Trump administration is floating an idea that sounds intuitive to a lot of people: portable mortgages. The concept is that when you sell your house and buy a new one, you could transfer your existing mortgage, including your interest rate, to the new property. To many homeowners, this seems obvious. It’s your loan, you’ve been making payments reliably, why shouldn’t you be able to take it with you when you move?
But there’s a reason this doesn’t exist in the United States. Mortgages are secured by specific properties. The bank lent you money to buy a particular house, and that house serves as collateral. If you default, they foreclose on that specific property. The entire mortgage finance system—including the secondary market where most mortgages are packaged and sold to investors—is built around this principle of specific collateral backing specific loans.
Yet FHFA Director Bill Pulte says Fannie Mae and Freddie Mac are “actively evaluating” how to make this work. The pitch is straightforward: millions of homeowners are locked into their current homes because they have three percent mortgages from the pandemic era, and they don’t want to sell and take out new mortgages at seven percent. Portable mortgages would let them keep their low rates when they move, unlocking the frozen housing market.
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Who Pays for Portability?
Let’s walk through what would actually have to happen. Say you own a $400,000 house with a $200,000 mortgage at three percent, and you want to move to a different $400,000 house.
Normally, you sell for $400,000, the buyer’s mortgage pays off your loan, and you use the proceeds to buy the new house with a new mortgage at seven percent.
With portability, the buyer still pays off your old mortgage, but your lender immediately issues you a new $200,000 mortgage at three percent secured by your new house.
The problem is obvious: your lender is now holding a below-market asset. A $200,000 mortgage at three percent when market rates are seven percent is worth perhaps $75,000-100,000 less in present value than a new loan at current rates. Why would any lender agree to this?
They wouldn’t, unless someone subsidizes it. And since we’re talking about Fannie Mae and Freddie Mac—government-sponsored enterprises in federal conservatorship—that “someone” is clearly the government.
The Securitization Problem
Here’s a critical constraint: this almost certainly can’t work for existing mortgages. Most mortgages originated in the pandemic era have already been sold by the original lender to Fannie Mae or Freddie Mac, packaged into mortgage-backed securities (MBS), and sold to investors. Those investors bought bonds secured by specific pools of mortgages on specific properties. You can’t simply extract a mortgage from an existing MBS pool and re-secure it against a different property without unwinding the entire security. Even if you could, the legal and accounting complexity would be staggering.
This means portable mortgages would only apply to new mortgages originated after the program starts. Someone taking out a mortgage today at seven percent could port it in the future. But someone with a three percent mortgage from 2021 probably couldn’t.
This is an inconvenient limitation for solving the current lock-in problem. The whole point was supposed to be helping people who already have low-rate mortgages move into homes appropriate to their current needs. But those are the very mortgages that can’t be made portable retroactively.
Going forward, the GSEs could securitize portable mortgages, but they would need to be packaged separately from traditional mortgages and priced differently. Portable mortgages would have much slower prepayment speeds—borrowers would port their loans instead of paying them off when they move, and would only refinance if rates dropped below their current rate. Investors would need to understand they’re buying a different product with different prepayment characteristics and price accordingly.
How Much Would It Cost?
There is no such thing as a free lunch or, in this case, a free suitcase mortgage. Someone has to pay for the interest rate differential. Most likely, that would be Fannie Mae and Freddie Mac, which means ultimately the Treasury and taxpayers.
A rough estimate: if 10 million mortgages eventually port with an average three percentage point rate differential on $250,000 for 15 remaining years, the present value cost is probably $100-150 billion total, or around $10-15 billion per year at peak. That’s real money, even by the standards of the government. The question is whether it’s worth it.
And here’s another cost: new mortgages would need to price in the portability option. If lenders know there’s a chance borrowers will keep below-market rates for decades by porting repeatedly, they’ll charge more upfront. New mortgages might cost 7.5 percent instead of seven percent to account for this risk. So, future homebuyers would pay more to fund portability they may never use.
Unfreezing a Frozen Housing Market
So, does this mean we should abandon the idea? Not necessarily.
While portable mortgages won’t solve the current lock-in problem, there’s a value to preventing the next lock-in episode.
The housing market has a structural allocation problem that will recur whenever interest rates rise sharply, especially after a prolonged period of low rates. Empty nesters occupy four-bedroom houses while young families can’t find family-sized homes. Nobody moves because of the mortgage rate lock-in. The efficient outcome would be for empty nesters to downsize and families to upsize, but the transaction cost—giving up a favorable mortgage rate—prevents this.
This is a textbook Coasian bargain problem. The efficient allocation of housing would have empty nesters in appropriately-sized condos and young families in the four-bedroom houses. But there’s a transaction cost preventing this reallocation: the interest rate lock-in. Empty nesters have valuable property rights—their low-rate mortgages—and they won’t give them up without compensation.
In a frictionless world, the parties would bargain directly. Young families would pay empty nesters to move. But the transaction costs of identifying and negotiating with specific homeowners are prohibitively high. And there’s also the wealth distribution problem: young families often lack the capital that would be required to pay the empty-nesters to accept the higher interest rate on their retirement home.
So, the government steps in to facilitate the bargain. The Treasury subsidizes the interest rate differential, homeowners can downsize without penalty, and family-sized homes become available. If this increases housing supply meaningfully, it should put downward pressure on prices—or at least slow price increases. The subsidy is simply the cost of overcoming the transaction cost that’s currently preventing efficient reallocation.
Is this the only conceivable remedy for the nation’s housing paralysis? Of course not. Yet the preferred alternative, the perennial exhortation to build more homes, collides with obstacles both human and concrete.
The enthusiasm for new housing often crumbles as the bulldozers approach our picket fences. Zoning boards discover their inner Burkeans. Environmentalists discover the climate impacts of new construction. Endangered species seem to insist on living their endangered lives where developers insist on developing. And even if local opposition could be soothed, the hard limits of infrastructure would reassert themselves. How many more bodies can the commuter train bear before it becomes a rolling penance? How many additional cars can the freeway absorb before motion itself is abolished?
Portable mortgages might be politically feasible where better policies aren’t. “Let Americans keep their low rates” polls well, even if the substance is a large government subsidy.
Portable Mortgages Won’t Help Us, But They Could Help Our Kids
This is clearly a regressive transfer—it directly benefits existing homeowners who already have valuable assets. But the social benefit comes from unlocking housing supply. In many markets, the constraint isn’t construction capacity or land—it’s that homeowners won’t sell because of rate lock-in. If portable mortgages significantly increase inventory, particularly of family-sized homes, that’s a real supply increase that benefits buyers and should improve affordability.
The question is whether $10-15 billion per year is a reasonable price for that reallocation. That depends, in part, on how elastic the response is. If only 100,000 households port mortgages, the per-unit subsidy is absurd. If it’s 2-3 million households over a decade, freeing up significant inventory in tight markets, the Coasian bargain might be worthwhile.
But we should be clear about the limitations: this doesn’t help people locked in or people locked out right now. It’s a policy for preventing the next lock-in episode, not solving the current one.
The millions of homeowners with three percent mortgages from 2020-2022 will likely remain stuck unless rates decline naturally or they decide the trade-off is worth making. And the millions of young families who would like to buy the homes of boomers and older Gen Xers will have to keep waiting.
The honest case for portable mortgages isn’t that they’re economically optimal or that they solve today’s problem. It’s that they might be a politically feasible way to facilitate a Coasian bargain going forward, preventing future housing supply freezes when interest rates rise. Sometimes the second-best policy that can actually happen is better than the optimal policy that can’t.
Whether $10–15 billion a year is an acceptable premium for that insurance is, finally, a political question. But the mechanism, at least, could function. If we are willing to pay for mobility we no longer possess. Sometimes, you can just do things.
