In a recent letter, 34 senators and House members expressed concern about a proposal by Freddie Mac to purchase single-family, closed-end second mortgages on which the enterprise already owns the first lien. The lawmakers said the proposal, if implemented, would “exacerbate inflation, disrupt the home equity lending and consumer credit markets and increase risks to taxpayers, while providing no benefit to the many Americans who lack substantial home equity.”
The Federal Housing Finance Agency in April proposed the product to provide borrowers with a lower-cost alternative to a cash-out refinance in higher interest rate environments. The American Bankers Association in May sent a letter to the agency opposing the new offering, saying it doesn’t meet a need that’s not already addressed by the private market. The association also questioned whether it is appropriate for Freddie Mac to consider the product while it is still in conservatorship and lacking sufficient capital. In their letter, the lawmakers called for FHFA “to reject this misguided and hastily executed proposal.”
“It is crucial to understand that second mortgages, such as home equity loans, are consumer loans that finance spending and consumption,” the lawmakers said. “According to preliminary estimates, this proposal could lead Freddie Mac—and likely Fannie Mae—to finance hundreds of billions in additional equity extraction, which will only counteract the effects of tighter monetary policy and worsen inflation for Americans.”
