The


Federal
Housing
Finance
Agency
(FHFA)
this
week

announced
a
new
product
proposal
for
government-sponsored
enterprise
(GSE)


Freddie
Mac
that
would
allow
the
agency
to
purchase
certain
single-family,
closed-end
second
mortgages.

This
would
offer
borrowers
an
alternative
way
to
access
their

home
equity
without
surrendering
a
first
mortgage
with
a
more
favorable
interest
rate
than
is
currently
available.

The
proposal,

published
in
the
Federal
Register,
recognizes
that
existing
borrowers
“face
limited
options”
if
they
seek
to
access
equity
on
their
primary
residence,
particularly
if
they
have
a

mortgage
rate
from
a
loan
originated
during
the
low-rate
environment
of
the
COVID-19
pandemic.

“[A]
traditional
cash-out
refinance
today
may
pose
a
significant
financial
burden,
as
it
requires
a
refinancing
of
the
entire
outstanding
loan
balance
at
a
new,
and
likely
much
higher,
interest
rate,”
FHFA
said
in
its
proposal.
“Homeowners
may
also
use
second
mortgages
to
access
the
equity
in
their
homes,
[where]
only
the
smaller,
second
mortgage
would
be
subject
to
the
current
market
rate,
as
the
original
terms
of
the
first
mortgage
would
remain
intact.”

Second
mortgages
are
also
typically
offered
at
a
lower
interest
rate
than
certain
alternative
products
like
personal
loans,
so
Freddie
Mac’s
proposal
is
to
purchase
“certain
closed-end
second
mortgage
loans
from
primary
market
lenders”
that
are
already
approved
to
sell
mortgages
to
Freddie
Mac,
the
proposal
states.

“In
a
closed-end
second
mortgage
loan,
the
borrower’s
funds
are
fully
disbursed
when
the
loan
closes,
the
borrower
repays
over
a
set
time
schedule,
and
the
mortgage
is
recorded
in
a
junior
lien
position
in
the
land
records,”
FHFA
stated.
“Freddie
Mac
has
indicated
that
the
primary
goal
of
this
proposed
new
product
is
to
provide
borrowers
a
lower
cost
alternative
to
a
cash-out
refinance
in
higher
interest
rate
environments.”

FHFA
Director

Sandra
Thompson
explained
that
such
options
are
needed
in
the
current
mortgage
rate
environment.

“The
proposed
activity
is
intended
to
provide
homeowners
with
a
cost-effective
alternative
for
accessing
the
equity
in
their
homes,”
Thompson
said
in
an
announcement
of
the
proposal.
“Reviewing
and
considering
comments
from
the
public
will
be
a
critical
component
of
our
review
as
the
agency
exercises
its
statutory
responsibility
to
evaluate
new
enterprise
products.”

This
is
specifically
designed
to
benefit
consumers
during
the
high
rate
environment,
the
agency
said.

“In
the
current
mortgage
interest
rate
environment,
a
closed-end
second
mortgage
may
provide
a
more
affordable
option
to
homeowners
than
obtaining
a
new
cash-out
refinance
or
leveraging
other
consumer
debt
products,”
the
proposal
explained.
“A
significant
portion
of
borrowers
have
low
interest
rate
first
mortgages,
and
the
proposal
would
allow
those
homeowners
to
retain
this
beneficial
interest
rate
on
the
first
mortgage
and
avoid
resetting
to
a
higher
rate
through
a
cash-out
refinance.”

The
Federal
Housing
Enterprises
Financial
Safety
and
Soundness
Act
of
1992,
as
amended
by
the
Housing
and
Economic
Recovery
Act
(HERA)
of
2008,
requires
the
GSEs
to
provide
advance
notice
to
FHFA
of
any
potential
actions
or
products
they
aim
to
pursue.
This
notice
demonstrates
that
FHFA
is
fulfilling
its
mandate
and
seeks
public
comments
on
the
proposal.

The
comment
period
lasts
30
days
from
the
publication
of
the
proposal
in
the
Federal
Register,
making
May
16,
2024,
the
end
of
the
comment
period.
Interested
parties
can
submit
comments
to
the
agency
on
its

website
or

via
email.

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