The Federal Housing Finance Agency announced today that it had granted conditional approval to a Freddie Mac pilot program to purchase single-family, closed-end second mortgages on which the enterprise already owns the first lien. FHFA proposed the new product earlier this year to provide borrowers with a lower-cost alternative to a cash-out refinance in higher interest rate environments.
“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 Director Sandra Thompson said.
The American Bankers Association in May expressed its opposition to the proposal. The association said the product doesn’t meet a need that’s not already addressed by the private market, and it questioned whether it was appropriate for Freddie Mac to consider the product while still in conservatorship and still lacking sufficient capital to back even its existing book of business. Also, earlier this month, a group of 34 senators and House members argued in a joint letter that the proposal could counteract the effects of tighter monetary policy and worsen inflation for Americans.
