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‘Not HELOC. Not piggyback.’ Freddie Mac exec defends new product proposal amid resistance

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Sonu Mittal

In their comments, trade groups expressed concerns about private players’ participation in the secondary market and the elevated risks the product poses to the enterprise. 

The MBA said it recognized that the product provides access to equity at lower rates and is a “cost-effective alternative to cash-out refinances.“ Also, if created, the “quick delivery into an agency TBA market could increase overall participation in home equity lending.“ But these are “theoretical benefits,“ the MBA concluded. 

“Some MBA members have raised concerns about the timing of Freddie Mac’s announcement — just as the private label securitization market for second liens is gaining steam — and fear this new product will capture share from other market participants and disrupt or reverse the progress that has been made,“ Pete Mills, MBA senior vice president of residential policy and member engagement, wrote in the letter. 

The U.S. Mortgage Insurers (USMI), an association representing leading private mortgage insurers, disapproved of the program. Its president, Seth Appleton, said that the proposal “does not align with Freddie Mac’s statutory mission, creates additional risk, is duplicative of an already active private market, and raises important, unanswered questions.“

Meanwhile, the Housing Policy Council (HPC) said that the GSE’s entry into this market could “add liquidity but at the expense of private capital and private market.“ In addition, it would increase risk. For example, if Freddie Mac guarantees a first-lien mortgage at a loan-to-value ratio of 65% and then acquires a second lien at 15%, its risk has “unequivocally gone up,“ the HPC stated. 

“Furthermore, the proposed new product will require Freddie Mac to expend resources to establish new credit, operational, and compliance practices inherent with the entry into any new line of business and will require additional capital. All of this would be a new expense at a time when Freddie Mac remains in conservatorship and is undercapitalized,“ HPC President Edward J. DeMarco said in the letter. 

Mittal told HousingWire that the “program is designed to provide liquidity and promote standardization.“ According to him, borrowers took out about $100 billion in closed-end second liens last year, and less than $5 billion was securitized. In addition, the product is only available to borrowers who have a first lien with Freddie Mac. 

“It may make sense for some homeowners. And it may not make sense for some. The thing I keep trying to tell folks is that this is not HELOC; this is not piggyback where you can do first and second, and this is 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 it with all those different cuts, it’s a different sizing or opportunity that exists.“ 

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Freddie Mac’s head of single-family acquisitions, Sonu Mittal, this week defended the government-sponsored enterprise’s proposal to acquire single-family, closed-end second mortgages amid opposition by trade groups that are worried about its impacts on the secondary market. 

“Six out of 10 borrowers are below a 4% mortgage rate. But they have also accumulated a good amount of equity over the last few years. How do we allow them to extract equity out of their house in a responsible way?“ Mittal said in an interview with HousingWire

“What we are bringing forward, called closed-end second lien, assuming a details ⇒

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