Mortgage giant gets go-ahead, with conditions, to test second mortgages
The Federal Housing Finance Agency (FHFA) has granted Freddie Mac conditional approval to run a pilot program to purchase certain closed-end second mortgages on single-family homes.
This is the first time either Freddie Mac or Fannie Mae has proposed a new product under a more transparent public review process implemented by the FHFA in April 2023.
FHFA’s Prior Approval for Enterprise Products regulation mandates a transparent process for Freddie Mac and Fannie Mae to review and approve new activities, ensuring that any new initiatives align with public interest and safety.
The pilot program comes with several restrictions designed to manage risk and ensure focused evaluation. These conditions include:
- A maximum purchase volume of $2.5 billion
- A duration limit of 18 months
- A maximum loan amount of $78,277
- A minimum seasoning period of 24 months for the first mortgage
- Eligibility limited to principal/primary residences
These limitations are designed to test the product's effectiveness while minimizing potential market disruptions.
“The limited pilot will allow FHFA to explore whether this closed-end second mortgage product effectively advances Freddie Mac’s statutory purposes and benefits borrowers, particularly in rural and underserved communities,” FHFA head Sandra Thompson said in a statement.
Once the pilot wraps up, FHFA will analyze the data to determine if the program achieved its goals. Any expansion or extension of the pilot would be treated as a new product. If they decide to expand the program or make it permanent, the public will have another chance to weigh in.
The Mortgage Bankers Association (MBA) has expressed support for the pilot.
“MBA appreciates FHFA’s detailed responsiveness to the key questions we outlined in our comment letter regarding the program’s scope, mission, and secondary market implications,” MBA president and CEO Bob Broeksmit said. “FHFA’s receptiveness to feedback through the New Products and Activities Final Rule has produced a pilot rollout that is limited in size and duration, mitigates the impact on the private-label securitization market for second liens, focuses on borrowers with lower loan balances, and will encourage participation by smaller lenders that do not have easy access to liquidity for closed-end seconds.
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“MBA and its members will remain engaged with FHFA and Freddie Mac to monitor the results of the pilot and ensure that it remains available to lenders of all sizes and business models and avoids disrupting the developing private-label securitization market for second liens.”
“The thoughtful engagement from public stakeholders confirmed the value of a transparent process for evaluating potential new enterprise products and informed the parameters of the conditional approval,” Thompson said.
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