The
This proposal, which
During the comment period, which ended on May 22,
"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," said Sandra Thompson, the FHFA's director, in a press release and 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."
Among the limits FHFA established are a $2.5 billion maximum in loan purchases, over an 18-month period. The individual loan limit is $78,277, which FHFA said corresponds to subordinate lien thresholds established in the qualified mortgage definition.
The first mortgage must have 24 months' seasoning and it has to be for the borrower's primary residence.
After the 18-month period ends, the FHFA will analyze the data to determine whether the objectives of the pilot were met. Any potential increase to the volume limit or extension of the duration, or conversion to programmatic activity would be treated as a new product that is subject to public notice and comment and FHFA approval.
The accompanying statement reaffirmed a belief that even many opponents held, that Freddie Mac is able to do this under its charter.
Furthermore, the limits ensure that private capital is not crowded out. It also extends the ability to obtain second mortgages to underserved markets.
The early reaction has been mixed. Christopher Whalen, whose Whalen Global Advisors, submitted a comment letter opposing the program, said most people in the industry expected the Biden Administration to go forward despite the substantial public opposition.
"Like the changes made by the FHFA to the [loan level pricing adjustments] grid, the impact of this change will be modest for the enterprises and negative for consumers," Whalen said in an emailed comment. "Low-income borrowers are far better served in the FHA/VA/USDA market," referring to the three government-guaranteed mortgage programs.
The U.S. Mortgage Insurers also opposed approval of the pilot, but took a conciliatory tone in its statement.
"While today's announcement includes important limitations to the pilot, further clarifications should be provided including on how loan-to-value ratios will be calculated, information about applicable debt-to-income limitations, a specific exclusion for 'piggyback loans,' and additional details on capital and pricing treatment," the statement from Seth Appleton, president, said. "USMI recommended that any future expansion of an approved product be subject to additional public notice and comment, and we are pleased that Director Thompson included this policy as part of FHFA's conditional approval."
On the other hand, the Community Home Lenders of America, welcomed the move.
"CHLA thinks this is an important product given that skyrocketing interest rates have made getting a refinance unaffordable," Scott Olson, its executive director, said in a statement.
The Mortgage Bankers Association, which asked the FHFA to do more analysis before going ahead with the program, said it appreciated the regulator's detailed responsiveness to its comment letter.
The process "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 President and CEO Bob Broeksmit said in a statement.
"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," Broeksmit continued.
