“Assuming FHFA approval, our proposed closed second lien will give them an alternative to a cash-out refinance,” he said. “If someone has a $300,000 mortgage and wants to take out $50,000, they don’t have to put The entire price of its first home mortgage has been repriced to the current interest rate of 7%.”
Mittal interviewed by HousingWire during tuesday Mortgage Bankers Association(MBA) Secondary Markets and Capital Markets Conference. Wednesday, federal housing finance agency (FHFA) ended the comment period on the proposal, which opened in April.
In their comments, trade groups expressed concern about the participation of private companies in the secondary market and the rising risks the products pose to companies.
MBA said it recognized the product offered the opportunity to acquire equity at lower interest rates and was “a cost-effective alternative to cash-out refinancing”. Overall family engagement”. But these are “theoretical benefits,” MBA concluded.
“Some MBA members expressed concerns about the timing of Freddie Mac’s announcement — just as the market for private-label securitizations of second liens is booming — and worried that this new product will take share from other market players and Disrupt or reverse progress that has been made.
this United States Mortgage Insurance Company (USMI), The association representing major private mortgage insurers disapproves of the plan. Its president, Seth Appleton, said the proposal “is inconsistent with Freddie Mac’s statutory mission, creates additional risks, duplicates an already active private market, and raises important, unanswered questions.”
at the same time, Housing Policy Committee (HPC) said the GSEs’ entry into the market could “increase liquidity at the expense of private capital and private markets.” For example, if Freddie Mac secures a first-lien mortgage at a 65% loan-to-value ratio and then takes a second lien at a 15% ratio, its risk “clearly increases,” HPC said.
“In addition, the proposed new product will require Freddie Mac to expend resources to establish new credit, operating and compliance practices that are inherent in entering any new business area and will require additional capital. While Freddie Mac remains under regulation state and undercapitalized, all of this will become a new expense,” HPC President Edward J. DeMarco said in the letter.
“The program is designed to provide liquidity and promote standardization,” Mittal told HousingWire. According to him, borrowers took out about $100 billion in closed second liens last year, of which less than $5 billion was securitized. Additionally, the product is only available to borrowers with a first lien against Freddie Mac.
“That may make sense to some homeowners. It may not make sense to some people. What I always try to tell everyone is, it’s not a HELOC; it’s a HELOC. It’s not like you can do first and second thing, and that’s not open to all first lien mortgages in the country, it’s only if you have a Freddie Mac first mortgage. So when you start slicing with all these different cuts. There will be different sizes or opportunities.
If the home equity product is approved as proposed, its term would be as long as 20 years (even though the first mortgage would have a shorter term). It will be manually underwritten and remain in Freddie Mac’s portfolio for six to nine months until the second mortgage non-TBA-backed security is created.
The value of the closed second mortgage cannot exceed the value of the first mortgage, and the total loan-to-value ratio must be less than 80%. Homeowners can refinance at any time, but they must consolidate the first and second liens or pay off the second lien.
“We have a huge opportunity to help borrowers or existing homeowners with this product. But we still have to wait for the FHFA’s decision. And then we also have to think about how we’re going to move forward if we do get approval. This is not a pilot. This will be a phased rollout,” Mittal said.
If the product is approved by the FHFA, Freddie Mac’s goal is to “select a group of lenders to participate in the first phase of adoption without compromising safety and soundness” and “make the product available later this year, early next year.” to the market,” added Mittal.
Bank of America strategists estimate the product could unlock $850 billion in origination volume.
