The program is only available for primary residences and the first mortgage must be for a minimum term of 24 months. Maximum loan amount is $78,277. Freddie Mac will be allowed to purchase up to $2.5 billion in second mortgages within 18 months.
“Thoughtful engagement with public stakeholders confirmed the value of a transparent process for evaluating potential new Enterprise products and informed the parameters for conditional approval,” FHFA Director Sandra L. Thompson said in a statement. “The limited pilot will allow “FHFA is able to explore whether this closed-end second mortgage product can effectively further Freddie Mac’s statutory purposes and benefit borrowers, particularly in rural and underserved communities.”
Scott Olson, Executive Director American Community Home Lender (CHLA) issued a statement supporting the decision.
“This is an important product given that interest rates are soaring and refinancing is becoming unaffordable,” Olson said.
Bob Broeksmit, President and CEO Mortgage Bankers Association (MBA) said the trade group’s acceptance was based on a “rollout of limited size and duration”.
“[The program] Mitigating the impact of second liens on the private label securitization market, focusing on borrowers with lower loan balances, and will encourage participation by smaller lenders who do not have easy access to closed second lien liquidity,” Broxmit expressed in prepared remarks.
“MBA and its members will continue to work with FHFA and Freddie Mac to monitor the results of the pilot and ensure that the pilot remains available to lenders of all sizes and business models and avoids disrupting the developing second lien private label securitization market.
In its announcement, the FHFA said it will “analyze data on Freddie Mac-purchased second mortgages to determine whether pilot objectives have been met.” The pilot program will be considered a new product. This will subject it to a separate public comment period and further approval by FHFA.
during an interview house line Last month, Sonu Mittal, Freddie Mac’s director of single-family acquisitions, defended the agency’s proposal to acquire closed second mortgages. The product is intended as a cash-out refinance alternative for homeowners who don’t want to deal with lower mortgage rates, which are around 7 percent, he said.
“Six out of 10 borrowers have mortgage rates below 4%. But they’ve also accumulated a lot of equity over the past few years. How do we get them to extract equity from their homes in a responsible way?
Some trade groups opposed the plan, which was initially announced in April.
Seth Appleton, President United States Mortgage Insurance Company (USMI), It said at the time that the plan “is inconsistent with Freddie Mac’s statutory mission, creates additional risks, duplicates already active private markets, and raises important, unanswered questions.” Housing Policy Committee It previously said Freddie Mac’s entry into the market could “increase liquidity at the expense of private capital and private markets.”
Bank of America Analysts had previously estimated that new issuance of the product could be as high as $850 billion, a sizable figure at a time when mortgage companies are struggling with rising interest rates and falling inventory levels for sale.
Thompson noted that the $2.5 billion volume cap “responds to concerns expressed by some commentators about the potential impact of a broader issuance on the macroeconomic and mortgage markets.” The cap on the approved pilot program is less than what many market estimates 0.5%.
“The move is intended to allay concerns about potential inflationary effects, a wider mortgage ‘lock-in’ effect or a ‘crowding out’ of private capital,” Thompson said.
Editor’s note: This article has been updated with comments from the National Association of Community Home Lenders and the Mortgage Bankers Association.
