The Federal Housing Finance Agency recently approved Freddie Mac’s proposed pilot program to acquire single-family closed-end second mortgages on which the enterprise already owns the first lien.
Freddie Mac will face several limits, including a maximum $2.5 billion in purchases; 18-month duration; $78,277 maximum loan amount; minimum 24 months for the first mortgage; and eligibility only for primary/principal residences. FHFA plans to analyze data on Freddie Mac’s purchases of second mortgages to determine if the pilot’s objectives are met and whether to make the project permanent.
FHFA proposed the program earlier this year to provide borrowers with a less expensive alternative to a cash-out refinance amid higher interest rates. FHFA Director Sandra Thompson said the pilot will allow FHFA to review whether the mortgage product “effectively advances Freddie Mac’s statutory purposes and benefits borrowers, particularly in rural and underserved communities.”
The Independent Community Bankers of America and American Bankers Association criticized the program. ICBA President and CEO Rebeca Romero Rainey said Freddie Mac hasn’t proven the market need as the private sector already provides single-family closed-end second mortgages. She predicted the plan would only exacerbate housing supply challenges for new homebuyers.
Both Freddie Mac and Freddie Mae remain under conservatorship, after the FHFA placed them there in response to the 2008 housing crash and financial crisis. “ICBA and the nation’s community banks are deeply concerned with the FHFA’s announcement that Freddie Mac — which has been in federal conservatorship for more than 15 years — will enter a market that is already liquid and well served by private-sector community banks,” Romero Rainey said.
The ABA questioned whether Freddie Mac should undertake the pilot while still under conservatorship and lacking capital to back its existing book of business. In May, a group of nearly three-dozen senators and House members said the proposal could thwart the impact of tighter monetary policy while worsening inflation.