The Biden administration this week approved a new pilot program overseen by government-backed mortgage giant Freddie Mac that would provide second-lien mortgages to homeowners in the United States.
The Federal Housing Finance Agency (FHFA) gave "conditional approval" for Freddie Mac to launch a pilot program allowing it to purchase certain single-family closed-end second mortgages.
Under the program, Freddie Mac will have a $2.5 billion cap on purchases over 18 months, with a maximum loan amount of $78,277. In addition, the program can only be applied to principal or primary residences. The plan is designed to help homeowners secure low-interest mortgages as well as access their home's equity for smaller loans for projects like home renovations.
"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 L. Thompson said in an accompanying 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 FHFA will analyze data on the program after the pilot ends to determine whether "the objectives were met."
What Mortgage Experts Say About the Program
Some mortgage experts have sounded the alarm on Freddie Mac's pilot program. Prior to the approval, multiple senators and congresspeople wrote a letter addressed to FHFA Director Thompson, warning her that the program would likely "exacerbate inflation" and "increase risks to taxpayers" while also providing no benefit to Americans without substantial home equity.
Michael Bright, CEO of the Structured Finance Association and former president of Ginnie May, also made a similar warning.
"The people who should be really mad, I think, are first-time homebuyers who are trying to get their foot in the housing market. They can't because housing is unaffordable," he said Tuesday on The Bottom Line.
"You can get mortgage loans through banks and everything, but if the government comes in and really amps this up, you're talking about additional inflationary pressures. You're talking about additional rate-lock effect. People taking equity out of their home means they're not going to sell their home and move. We already have a supply crisis," Bright added.
