After enjoying a long-standing presence in Canada, portable mortgages arrived in the U.S. in June 2003 with E*TRADE FINANCIAL's introduction of "Mortgage on the Move." In anticipation of the imminent end of the refinancing boom and the resulting commodization of mortgage originations, "Mortgage on the Move" represents an innovative adaptation of the traditional Canadian portability option to the U.S. market that E*TRADE hopes will continue to grow its mortgage lending business.
In Canada, where portability has been a feature of mortgage offerings for nearly two decades, and where lenders assess heavy prepayment penalties, customers often can exercise the option to carry the terms of their mortgages from one residence to another without suffering an increase in their interest rates. Shorter mortgage terms and longer amortizations allow lenders to include this feature in their offerings without penalizing homebuyers.
E*TRADE allows "Mortgage on the Move" customers to transfer the terms of a mortgage to a new residence at any time during the term of the loan, but charges a premium of three-eighths of one percent over its 30-year fixed-rate jumbo mortgage loan rate and maintains a series of eligibility requirements. Assuming interest rates rise as expected, homebuyers who anticipate changing primary residences in the future benefit from locking in a low rate.
While spurring widespread interest among U.S. homebuyers, market analysts, and financial institutions, portable mortgages face opposition from mortgage brokers, whose continued profitability depends on the capture of repeat business. In addition, Fannie Mae and other large secondary market players are reluctant to purchase mortgages that don't hold clear value for all stakeholders - lenders, borrowers, loan servicers, and investors. Despite the barriers to their rapid growth in the U.S., however, portable mortgages offer lenders an opportunity to grow the size and profitability of their mortgage portfolios by allowing homebuyers to lock in low interest rates.
For more information on the potential growth of portable mortgages in the U.S. market, click here.