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The GSE's limited program will permit cost-effective cash-out refinances
The Federal Housing Finance Agency (FHFA) issued its conditional approval for Freddie Mac to purchase single-family, closed-end second mortgages in a limited pilot program.
This follows the FHFA’s passage of its Prior Approval for Enterprise Products regulation, which went into effect in April 2023.
“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,” FHFA Director Sandra Thompson said in a statement. “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.”
The conditional approval comes with several product limitations on Freddie Mac’s pilot, including a maximum volume of $2.5 billion in purchases; a maximum program duration of 18 months, and a maximum loan amount of $78,277.
The announcement was well-received by trade associations representing industry stakeholders, including the Mortgage Bankers Association (MBA).
“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 commented. “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. 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.”
Following the pilot’s limited run, the FHFA will analyze the data collected and determine if objectives were met before issuing any subsequent approval.
The Community Home Lenders of America (CHLA) also put forward its support of the pilot.
“CHLA supports FHFA's conditional approval of Freddie Mac's second mortgage program,” said Scott Olson, executive director of the CHLA. “This is an important product given that skyrocketing interest rates have made getting a refinance unaffordable.”