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Speaker: [00:00:00] Hey, welcome back to the What's Your One More podcast. I'm your host, Quinton Harris. You're dialed in for another episode [00:00:05] here at What's Your One More obviously Look around. It looks a little different. Feels a little different. Uh, that's because [00:00:10] we're transitioning studios right now. I cannot wait to get into our new one and kind of give you guys a [00:00:15] peek of what we've been putting together there.
Uh, but we've decided to move studios, create like a multi-use space, [00:00:20] uh, for our friends and family and other people that have been asked to use our podcast. We're real excited about this. [00:00:25] Uh, stay tuned. That should be ready by the end of next week, but until then, you're, you're actually in like my domain.[00:00:30]
Right now you're actually were, I do all of my business, all of the economic projections, [00:00:35] and, uh, do a deep dive into many of our topics that we talk about here on the podcast. So today, obviously, [00:00:40] you know, I'm going through its Veteran's Day, beyond the Veteran's Day post. It's sad, I'm seeing more [00:00:45] posts on the 50 year mortgage topic conversation than we're seeing on a Veteran's Day.
[00:00:50] But I think it kind of goes with the notion of facts over fear. You know, we talk about this on the show all the time. [00:00:55] It's one of the things that we're gonna continue to talk about. Um, but this is a great example, right? The idea of [00:01:00] a 50 year mortgage and what could be accomplished here. And I think what we're talking about is, [00:01:05] you know, hey, create an affordability.
There's an idea. Let's just extend the term out. You know, a lot of people use [00:01:10] cars. If you remember, cars are really highest term. You would've seen, you know, 10 years ago was 60. [00:01:15] Months now it's 84, right? In some cases 96. But you take, look at the 50 year mortgage here and I just, it, it's [00:01:20] interesting like I'm doing a podcast on this 'cause it really doesn't require podcasts at all.
You could sum it [00:01:25] up in one thing that is, it takes an amendment to the Dodd-Frank Act that was put [00:01:30] in place and it takes an amendment to the QM rule for that to even happen. And that's totally not even [00:01:35] being talked about at all in any of these social media postings. You see people breaking down payments, talking about [00:01:40] affordability.
All of the rate changes that could take effect. But the reality is like none of that happens [00:01:45] without the QM rule being changed, which was a portion of the Dodd-Frank Act. [00:01:50] Now, maybe the non QM space can come in there. You first talk about those particular loan programs, but the reality is this. [00:01:55] Those rates are typically higher than your standard conventional loans, which is [00:02:00] going to kind of mitigate the affordability there.
So what I'm gonna do in this podcast is I'm kind of going to [00:02:05] break down the rules and the walls that would have to be amended and changed. I'm also gonna show you these payment [00:02:10] options that people are referring to on the what if scenarios. If rates were to be, increased [00:02:15] because of the 50 year term.
So I'm gonna go through that in a little bit more in this episode of what's your one more.
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Speaker: Alright, so welcome back here. So [00:02:25] let's talk a little bit about the regulation and kind of what came about with the Dodd-Frank Consumer Protection [00:02:30] Act. We normally call this the Dodd-Frank Act, but it has a, a longer name here.
The [00:02:35] reality is there were a lot of things put into place to protect the consumer. One of [00:02:40] those was the qualified mortgage rule, and inside that qualified mortgage rule were a lot of things like you can't have a [00:02:45] prepayment penalty on these types of loans. The term can't go beyond 30 years. You know, [00:02:50] there were some things you couldn't have negative amortizations inside of it.
A lot of things we put in place to protect what happened [00:02:55] from, you know, 2007 and prior to that, we felt as an industry kind of propped up [00:03:00] this real estate collapse that happened. Extending to a 50 year mortgage [00:03:05] goes beyond what's allowable in that particular, uh, law that was passed. And so to [00:03:10] think that, Hey, listen, we're just gonna come up with a 50 year mortgage, throw it out there, and Bill Pulte kind of, you know, tongue in cheek said, yeah, [00:03:15] it's on the way.
It's great. Um, maybe a little. Maybe, maybe a little overzealous there. [00:03:20] Um, some are claiming it's a little irresponsible because the reality is this isn't something they can just change overnight. I [00:03:25] mean, we don't still don't even have the federal government back working yet, and I guarantee you when they come back, the top [00:03:30] priority is not going to be able, Hey, let's get these 50 year mortgages done and amend the Dodd-Frank Act.
That's not the case. [00:03:35] So, but with that being said, let's play the What if game, and I wanna make it abundantly clear. All this [00:03:40] is, it's a what if game. Yes. You could have the non QM space come in tomorrow and say, oh, hey, guess what, Quentin? [00:03:45] We did it. We've got a 40 year and we've got a 50 year. It's gonna come with a rate bump because [00:03:50] the old financial formula still holds true.
The greater the risk, the greater the reward. The longer the term is, the [00:03:55] greater the risk. The higher the reward is, the higher the interest rate. That's gonna be the case every single time. So what [00:04:00] is going to happen is with these 50 year mortgages are gonna come higher rates, whether it's on the commissional side.[00:04:05]
Pending, they can change or amend the Die Frank Act. Or if it's on the non QM side, there's not a [00:04:10] single investor that's going to wait. 50 years and give you the same rate as if it was 30. [00:04:15] Now I know a lot of people online, there's, uh, putting out a lot of propaganda about this, a lot of [00:04:20] opinions, and I think it's really important to understand like this is an opinion.
What I'm sharing with you today is a fact. The [00:04:25] fact is higher rate on a longer term fact is the QM rule is gonna have to be [00:04:30] modified for that to become a conventional loan in any capacity. Those are just facts and that's not gonna happen overnight, [00:04:35] but let's assume it did. For the assumption of this, let's assume, so if we're looking at [00:04:40] today's 30 year fixed race, they're somewhere in the range between 6.375 and six and a half.[00:04:45]
If you go back in time to 2005 and 2006, when 40 [00:04:50] year terms, yes, 40 year terms were a conventional product during that time with Fannie Mae and [00:04:55] Freddie Mac. You saw the rate bump take effect to somewhere to the notion of about a [00:05:00] half a point. So let's add that half a point into this equation, okay. For a 40 year term.
And [00:05:05] let's just assume that that's what it's going to be for a 50 year term. You know, a couple charts here, if you're [00:05:10] listening and you know, we like to do charts and you get a chance to go to our YouTube channel. Check us out at, what's your, [00:05:15] one more with number one. That's what's your, one more with number one.
Let's look at this breakdown here, and I've got it up on my screen here. [00:05:20] And let's look at the difference between a $300,000 loan, a $400,000 loan, and a [00:05:25] $500,000 loan in regards to a 30 year versus a 50 year with that rate [00:05:30] assumption I just described. So let's start with 500,000, and I'll probably just end with [00:05:35] that one as well.
But if you were looking to buy a $500,000 loan and you were doing it, today's market rate of that [00:05:40] 6, 3, 7, 5, I'm describing on a 30. Year. Term, that'd be about a $3,100 [00:05:45] payment with principal and interest. This does not include taxes and insurance. If you do that on a [00:05:50] 50 year at 6.8, it's 29 point 32. Your savings is [00:05:55] $169 a month.
Now, is that massive affordability being created? I couldn't tell you. That's up to [00:06:00] the person's budget and their lifestyle. Me personally, I don't think that affordability offsets [00:06:05] the dramatic amount of interest being paid for the additional 20 years. 'cause the difference in [00:06:10] interest is about $642,000 because the interest on that 30 [00:06:15] year, it's about six 20.
The interest on that 50 year is about 1.3. It's a lot of money being [00:06:20] paid in interest, which is why this 50 year conundrum, if you may, it's not allowable in [00:06:25] the QM Bowl. It's because it's not a direct benefit to the borrow. The, the $169 savings per [00:06:30] month over that 20 year term is nowhere near offset the $642,000 in interest on [00:06:35] the term of that loan.
I think this is the fall, right? Uh, it's kind of like. [00:06:40] When you get people excited about something, just because you said it with no facts behind [00:06:45] it, or just because you put it out there with no, you know, research and, and r and d behind it. [00:06:50] It's, that's where I think it's a little irresponsible. And if you listen to the show, you know, like I support a [00:06:55] lot of the endeavors this administration is doing.
You know, I really like some of the ideas that are coming about. [00:07:00] This is one of those that I thought was a little silly personally. Hey, shout out to, to my [00:07:05] friend Barry Habib. I think what he's doing with sitting down and getting the LLPA. Is removed on [00:07:10] cash out refinances. Now there's a benefit that's a direct benefit to the consumers because now we're getting lower [00:07:15] interest rates, allowing people to take equity outta the home, pay down some of the debt they owe, maybe even stimulate [00:07:20] the economy through other purchases.
Now that's a win. That makes sense and that's doable [00:07:25] without having to modify the QM rule or having to go to the Dodd-Frank rule and modify that, or [00:07:30] Dodd-Frank Act and amend that, all of that. Now that makes sense to me and see that's forward thinking. He also [00:07:35] wanted to remove some of the LPs on second homes.
Again, stimulating the economy, moving [00:07:40] inventory, homes are being sold, transactions are taking place. Those are all things that can be [00:07:45] done at the FHFA level and not have to go to a congressional level. That makes sense to me. [00:07:50] The notion of a 50 year mortgage. To me was something that when I saw it, I thought, [00:07:55] you gotta be kidding me.
Uh, because I thought, honestly, I thought it was a joke at first. I, I really did. I even [00:08:00] saw someone recently go as far in post, Hey, just so you know, 15 year car notes are coming out next, [00:08:05] uh, announcement from the White House. I mean, that's how ridiculous the 50 year sounded. Um, and I understand the [00:08:10] principle behind, the principle behind was, and this goes back to why I agree with the, the economic [00:08:15] push that this administration's making is we want to focus on affordability.
We want to help [00:08:20] people. Buy homes. We want to be homeowners. I get that. Like I think that's really important, [00:08:25] and I think putting a 50 year out there is just showing what extreme measures they're willing to go to to get that. [00:08:30] I don't think there's any backing behind that getting done. I could be wrong. I could be wrong.
We could be talking a month from [00:08:35] now and I'm like, wow, I can't believe we're doing a 50 year mortgage. It doesn't make sense. I don't think that's the case. [00:08:40] I think this is more of a measure of saying, Hey, in good faith, I'm wanting show you guys as a, as an American [00:08:45] public, how far we're willing to go to get this done.
I don't know that we can do it, but this is what we're aiming for. And [00:08:50] I think that was more of the post than it was, uh, maybe this didn't really have a lot of teeth around it, in my [00:08:55] opinion. Again, I could be wrong, but take a look at these charts. Another thing we'll show on there is that total interest paid, and you'll kind of see the [00:09:00] difference between a 30 and the 50 year and a bar graph on there as well.
And it's substantial. I mean, it's night and [00:09:05] day. It's why even the 40 years don't make sense anymore. You take a look at it because it's still so far fetched, [00:09:10] which is why that qualified mortgage rule was put into place. So guys, if you like what you're hearing, please share this. It's gonna be a [00:09:15] short podcast.
Like we're, we're in the middle of my office. Had to move some things here. Gotta get back to work. But hey, next time I'll talk. To you, it'll be [00:09:20] in the studio. I'm looking forward to that, looking forward to showing you guys the new digs that we got over there. And I just wanna say [00:09:25] hey, thank you to my producer, Charlie Walker, for making this happen.
'cause this was a real last minute. Throw it together and get it out there. [00:09:30] But guys, hope you like what you're hearing. Please five star review this, continue to pump comments to us on YouTube, check us out our [00:09:35] channel. What's your, 1 more with the number 1. And guys, as always, thanks for tuning in to What's your 1 more.
We'll see the next [00:09:40] episode. [00:09:45] [00:09:50] [00:09:55]
