The Federal Housing Finance Agency (FHFA) has granted conditional approval for Freddie Mac to purchase certain single-family closed-end second mortgages as a pilot program.
This is the first time Freddie is exploring the purchase of second mortgages as a new product.
Freddie’s pilot program is being launched following a public review period that was mandated under the FHFA’s new Prior Approval for Enterprise Products regulation – a more transparent review process launched by the agency last April.
“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,” says Sandra L. Thompson, director for the FHFA, regulator of Fannie Mae and Freddie Mac, 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 includes several limitations on the product, including a maximum volume of $2.5 billion in purchases; a maximum duration of 18 months; a maximum loan amount of $78,277, corresponding to certain subordinate-lien loan thresholds in the Consumer Financial Protection Bureau’s definition of Qualified Mortgage; a minimum seasoning period of 24 months for the first mortgage; and eligibility only for principal/primary residences.
Upon the pilot’s conclusion, FHFA will analyze the data on Freddie Mac’s purchases of second mortgages to determine whether the objectives of the pilot were met.
In a statement, Bob Broeksmit, president and CEO of the Mortgage Bankers Association, says the “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.”
“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,” Broeksmit says. “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.”
Photo: Drahomír Hugo Posteby-Mach