President Donald Trump made waves again last week after a post on Truth Social implied he's going to try to implement 50-year mortgages. Government regulators keep the maximum mortgage term limit at 30 years right now, and with home prices and mortgage rates stuck at high levels, the president thinks this will make it easier to buy a home.
There may be benefits and drawbacks to the plan, and it will have to jump through a lot of hoops to get off the ground. Longer-term mortgages would make monthly payments lower, but they would also make the total expense of buying a home even higher, once all the interest costs of longer payments are added in. They could make it easier to buy a home, but that could also come with higher default rates over such an extended period of time.
If it comes to pass, though, many companies will benefit. Banks and loan companies that deal with mortgages could get a boost, and real estate companies could finally gain traction. Upstart Holdings (UPST +3.84%) and SoFi Technologies (SOFI 2.17%) could be among the big winners.
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1. Upstart: Mortgages and more
Upstart isn't a lender, but it works with lenders, providing an artificial intelligence-enabled loan platform that assesses creditworthiness faster and more accurately than the traditional credit scoring model. It claims to approve more loans without increasing risk, putting more money to work for borrowers and making more money for lenders.
The company has been through some big ups and downs as interest rates swung, but as interest rates start to come down, performance has been improving.
Management is expanding the platform, which started with personal loans and moved into auto lending. It recently released its first home product, a home equity line of credit (HELOC), which is still in its early days. Management noted that real estate is by nature less of a digital process since it can involve things like home inspections, but it was automating the process as much as possible. When it first launched, Upstart approved 1% of loans automatically, and today that's 20%.
NASDAQ: UPST
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Management also noted that the take rate for HELOCs is lower than for other loans, but since the size of the loan is much bigger, it still gets a healthy fee from each approval. Mortgages are the company's largest addressable market, worth $1.4 trillion these days. In a better market, that's even higher.
If a 50-year mortgage plan goes through and more people start buying homes, Upstart's HELOC product could reap huge rewards.
2. SoFi: The bank for a new generation
The people hit hardest by the housing crunch are younger adults who are just starting out. The median age of first-time home buyers hit a record 40 this year, whereas it was in the 20s in the 1980s.
This is SoFi's target clientele. SoFi started as a loan co-op for university students, and students and young professionals make up its core base. The bank's strategy is to connect with these customers when they're young and provide them with more of their financial management needs as they get older and have more money. Ninety percent of checking and savings account deposits are direct deposit, and this is an upwardly mobile constituency.
NASDAQ: SOFI
Key Data Points
As a young bank reliant on its lending segment, SoFi had been under pressure amid high interest rates. As they decline, the lending business has been booming, with a record $9.9 billion in originations in the third quarter, a 57% increase over last year.
Home loans are still SoFi's smallest lending category, but it's growing the fastest. Loan volume increased 93% over last year in the third quarter, and if the real estate market rebounds, whether through a 50-year mortgage or something else, it's likely to become SoFi's largest segment and contribute to the whole in a big way.
