Fannie Mae (FNMA)

[navycmdr]

$Boooom ! - Freddie Mac wants a new role financing
Homeowners sitting on equity. One banking group isn’t happy.
if Banks don't like it - $IT'S a $GENIUS MOVE !!
($Very $Smart $Move - $ALREADY SOLID $PRODUCING $LOANS)

Published: April 17, 2024 at 5:30 p.m. ET - By Joy Wiltermuth

The housing giant could make a $850 billion splash in the market for
second-lien mortgages under a new proposal



A Wall Street lobbying group thinks Freddie Mac’s proposal is mission creep and wants
second-lien mortgages to stay in the domain of private credit. GETTY
-8.97%

Housing giant Freddie Mac wants the green light to expand its already dominant footprint
in the estimated $44.8 trillion U.S. housing market. But not everyone is on board.

Federal regulators want feedback on Freddie’s new proposal to allow it to start buying up
second-lien mortgages, a popular product among cash-strapped U.S. homeowners looking
to tap the equity in their properties, especially after mortgage rates shot up in the wake
of the pandemic.

Read: Homeowners scrambling for cash breathe new life into second-lien mortgage market

The aim is for Freddie to start buying fixed-rate second liens potentially by this summer, giving
borrowers a way to tap an estimated $32 trillion of equity built up in U.S. homes in recent years.
If approved, it would open the door for more borrowers to extract cash from their homes, without
having to refinance at current 30-year fixed mortgage rates of about 7.2%.

But a major financial-industry lobbying group said Wednesday that the second-lien market should
remain in the hands of private credit, not a partially government-backed entity.

“In the current market, closed-end second mortgages have been, and continue to be, successfully
originated and funded by private capital,” said Michael Bright, chief executive of the Structured
Finance Association, in a statement. “It is quite unclear what role the government-sponsored
enterprises have in funding these mortgage products, or how that fits into Freddie Mac’s overall
government-chartered mission objective.”

Freddie Mac FMCC, -5.38%, Fannie Mae FNMA, -8.97% and other government-sponsored
housing agencies already have a roughly $9.1 trillion stake in the estimated $13 trillion
U.S. residential-mortgage market.

While they don’t make loans, they buy up 30-year fixed-rate mortgages that conform to higher
lending standards put in place after the late-2000s subprime-mortgage crisis.

These lower-risk loans often end up bundled into bond deals with government guarantees that
primarily are owned by the Federal Reserve and banks, among other investors. Because of
these guarantees, investors consider the bonds to be a Treasury surrogate.

A hitch to Freddie’s proposal would be that it only buys second liens on homes where it already
financed the first mortgage.

Importantly, the proposal aims to limit how much homeowners can borrow in total against their
homes. Freddie said it plans to keep a borrower’s loan-to-value ratio at less than 80% when
looking at both first and second-lien mortgages on a home, keeping an equity cushion in place
in times of stress.

Servicing of the loans also would be overseen by Freddie, which means homeowners could
have access to payment pauses implemented by the government — such as the ones rolled
out during the COVID-19 pandemic, or in cases where homes are hit by hurricanes or other
natural disasters.

The SFA — which represents bond investors, issuers and Wall Street banks — called the
proposal “an unnecessary government encroachment into a sector that has been operating
successfully without government involvement.”

But Freddie’s charter, in place for decades, already indicates that it is authorized to purchase,
service, sell and deal in subordinate second liens.

BofA Global researchers estimated Wednesday that Freddie could end up owning around
$850 billion in second liens, given the huge swath of first-lien mortgages it already financed
at rates below 4%, and based on a combined loan-to-value ratio of 75%.

Fannie Mae, which hasn’t announced a similar program, could see volume of $1 trillion in
second liens when looking at the same parameters.

For context, the BofA Global researchers expect Wall Street to package up to a total of
about $11 billion in home-equity lines of credit and second liens into bond deals this year,
up from only $4.5 billion in 2023.

The U.S. housing market has been largely frozen since the Federal Reserve began
raising interest rates in 2022 to fight high inflation, a battle it continues to wage to this day.