The idea behind a portable mortgage, explains Bear Stearns, is that homeowners get a one-time opportunity to take a mortgage with them when they move. It is currently being offered as a purchase-only product that is priced 3/8 to 1/2 point higher in rate compared to a prime mortgage. If a borrower trades up to a larger home, E*TRADE could provide a second lien at prevailing first lien rates of up to an 80% LTV. And if the borrower trades down (which is considered a rather infrequent event), then the monthly payment could be lowered. Bear said that, in some ways, they view the concept as similar to an assumable mortgage. The only difference is that instead of the borrower changing, it is the underlying asset that changes.
At first glance, analysts thought this product had very little viability as a secondary market candidate. There is magnified extension risk considering that, with rising rates, housing turnover prepayments are expected to dip sharply, with borrowers exercising their options to transfer mortgages to the new properties.