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The person heading the Federal Housing Financial Authority (FHFA), the agency overseeing Fannie Mae and Freddie Mac, usually doesn’t get much attention. That’s not the case with the current director, Bill Pulte.

Pulte has been in the news constantly. It seems that he views his job as running through mortgage applications to see if he can find dirt on Donald Trump’s enemies. Thus far he has boasted about finding alleged violations in mortgage applications of New York Attorney General Letitia James, California Senator Adam Schiff, Federal Reserve Board Governor Lisa Cook, and now California Representative Eric Swalwell.

All four of these people had incurred Trump’s wrath for various reasons. It’s far from clear that any of these people have actually broken the law. The issue is not just whether they checked the wrong box on a form. The issue is whether they tried to deceive a lender, a charge Trump was found guilty of in a civil trial in 2022. If, for example, a congressperson had checked a box indicated a home was a primary residence but also explained that as a member of Congress they needed two homes, it would be hard to win a conviction that they committed fraud.

In addition to Pulte’s fishing expeditions through the mortgage applications of Trump’s enemies, which were deemed improper by the agency’s acting inspector general, there is also the question of how we all know about them. If Pulte had followed ordinary procedures, he would pass any evidence he came across to the agency’s inspector general, who would then make a decision as to whether to pass it along to the Justice Department. The public would only know of any issues if, and when, the Justice Department issued an indictment.

By contrast, Pulte has publicly advertised his big catches. But if we think the only thing Pulte does for his paycheck is harassing Trump’s political enemies, we would be badly mistaken. It turns out that Pulte has come up with a scheme to make homeownership more affordable. Pulte’s brilliant idea is 50-year mortgages.

The Not So Wondrous 50-Year Mortgage

The logic of a longer mortgage is that it would reduce monthly interest payments. A 50-year mortgage would likely carry a somewhat higher interest rate than a 30-year mortgage, just as a 30-year mortgage carries a higher interest rate than a 15-year mortgage. The monthly payment on 50-year with a 6.4 percent interest rate would be about 9 percent less than the payment on a 30-year mortgage with a 6.2 percent interest rate. That isn’t a huge advance for low-cost housing, but it does make the monthly payment more affordable.

The flip side is that with a 50-year mortgage people will accumulate equity at a far slower pace. After 10 years, a homeowner with a 50-year mortgage will have paid down just $15,300 of the principle on a $400,000 mortgage. By contrast, with a 30-year mortgage they would have paid down $61,800.

After 20 years with a 50-year mortgage, the homeowner would have paid down $44,300. With a 30-year mortgage they would have paid down $178,700. Going the other way, after five years a homeowner with a 50-year mortgage would have paid down $6,500, compared to $26,000 with 30-year mortgage.

This is worth noting since one of the main reasons many people push homeownership is that it allows people to build wealth. Homeowners are not building much wealth with a 50-year mortgage. Even after 20 years, the owner of a house selling for slightly more than the median home price, which is currently around $415,000, would have accumulated just $44,300 in addition to the down payment that they had paid 20 years earlier.

Of course, many homeowners do stay in their houses for longer. We all know people who have been in the same house for 40 or 50 years. These people would have accumulated substantial equity in their home even with a 50-year mortgage. But that is not the case with the vast majority of homeowners.

Currently, the median period of owning a home is roughly 12 years. For this reason, the $15,300 accumulated after ten years is a useful reference point, since a typical homeowner can expect this sort of accumulation at the point they sell their home. That is not zero, but not likely to get them far in retirement.

House Prices Don’t Always Rise

The picture gets more complicated if we factor in price changes and selling costs, and not in a good way. Many people have the idea that house prices always rise. That has been the case since the ’00s housing bubble collapsed and prices bottomed out in early 2012, but it has not always been the case. In the 106 years from 1890 to the beginning of the housing bubble in 1996, house prices just tracked the overall inflation rate.

House prices hugely outpaced inflation in the decade from 1996 to 2006 and then collapsed pretty much back to their trend path by 2012. They then began to rise again in response to serious underbuilding. House prices rose by more than 140 percent from their bottom in 2012, to the peak hit earlier this year. The Consumer Price Index rose by a bit more than 40 percent over the same period. This means that house prices are again way above their long-term trend.

That doesn’t mean we will see a collapse in prices as occurred in the years from 2006-2012; we don’t have the same sort of ridiculous financing supporting the run-up. But we are likely to see a downward drift in real house prices, especially if we can get building back to 2021-2022 rates. In fact, since peaking in February, nominal house prices have fallen nearly 1 percent.

This means that people betting on large increases in house prices over the next decade or two are making a bad bet. It is also worth remembering that this is a national average. There are very different stories across cities and regions. In the collapse following the bubble, some areas had price declines of 70 percent.

Many people who buy a home today, and sell it in five to ten years, as will very often be the case, may see a house price decline that swamps whatever equity they may have accumulated with a 50-year mortgage. And it is important to remember that people’s intentions in buying a home are not what determines how long they live there. Homebuyers may expect to stay in a house for 20 or 30 years, but changes in their employment or family situation can force them to move in just a few years. This could give us a similar story to what was often the case as the bubble collapsed, as some sellers had to bring cash to a closing.

Suppose the price of a house falls 10 percent after five years. With a 50-year mortgage a homeowner will have paid off just $6,500 of their $400,000 mortgage, meaning they will still owe $393,500. If the price has fallen by 10 percent from the purchase price, it will sell for $400,000. If the realtor’s fees and other selling costs are 7 percent of house sale price, they will be able to pocket $372,000 from the sale of the house. That means they will need another $21,500 to pay off their mortgage.

That’s not a pretty story. In fact, after the bubble collapsed there where often accounts of “jingle mail,” where people who owed more than their homes were worth ended up sending back their keys rather than trying to pay off their mortgage. This situation accelerated the pace of price decline in many markets and led to prices over-correcting.

This is at least as much a cautionary story about buying a house at inflated prices as it is about 50-year mortgages. Homebuyers are making a serious mistake if they think prices can only go up, but it is also a warning that 50-year mortgages might not be the best solution to high house prices, or “affordability” as the pundits call it.

We need more housing. If interest rates fall somewhat further, we stop doing things like imposing high tariffs on lumber and other building inputs, relax zoning restrictions, and stop deporting construction workers, we can get back to the pace of building we saw early in the pandemic recovery. This will bring prices back down. More houses will make houses more affordable, but it could mean that many people who buy today with a 50-year mortgage will not be very happy.

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