Freddie second-lien decision derided by opponents

While Freddie Mac is pleased the Federal Housing Finance Agency granted conditional approval to the second lien purchase program, some of the opponents reiterated their unease over this decision.

"We thank FHFA and those who provided their perspective and offered comments throughout this process," a statement from a Freddie Mac spokesperson said. "We look forward to working with FHFA and our stakeholders as we implement this proposal to responsibly support homeowners and the market."

The program engendered controversy, generating some 150 comment letters. While many did not challenge Freddie Mac's right to offer this program under its charter, they questioned if it should be done given that the private market generally fills this niche.

While disappointed with the end result, Ed DeMarco, president of the Housing Policy Council, noted that this was the first time FHFA undertook this new product approval process and that part worked.

The announcement didn't change the HPC's assessment of, nor its opposition to, the pilot.

"What they ended up doing clearly is more constrained than what was proposed," said DeMarco, who from 2009 to 2014 was the acting director of the FHFA, in an interview with National Mortgage News. "I take that, among other things, to demonstrate that FHFA gave a lot of consideration to the numerous negative comments that were received on this proposal."

Sandra Thompson, the current FHFA director, made an attempt to put boundaries around this program, which limit it in a meaningful way.

DeMarco also noted and was appreciative of Thompson's statement noting the agency was open to feedback on how the new product process should proceed in the future.

The Independent Community Bankers of America used its statement of disappointment to also take on the bigger issue of ending the conservatorships of both government-sponsored enterprises.

"ICBA and the nation's community banks are deeply concerned with the FHFA's announcement that Freddie Mac — which has been in federal conservatorship for more than 15 years — will enter a market that is already liquid and well served by private-sector community banks," said the statement from ICBA President and CEO Rebeca Romero Rainey.

The conservatorships of Freddie Mac and Fannie Mae have exposed both companies to political influence and compromised their founding purpose of expanding the secondary mortgage market to provide liquidity for home finance.

"The FHFA should avoid further disrupting the private sector, reject a perpetual conservatorship, and return the enterprises to private ownership and control, as required by the Housing and Economic Recovery Act of 2007," Romero Rainey said.

The Structured Finance Association called the pilot's approval an "unnecessary government encroachment" into an effective private market, and took the position that it does fall outside of the GSEs' charter mission.

"SFA believes the more prudent course of action would be to disallow the GSEs from purchasing closed-end second mortgages," said SFA CEO Michael Bright, in a statement. "That said, we appreciate the FHFA limiting the scale and scope of the program, with many of the newly announced limits coming directly from SFA members."

The organization looks forward to continued engagement with the FHFA and other policymakers regarding the second lien program, the statement concluded.

Given the limitations that the FHFA put on the program — a $2.5 billion maximum in loan purchases over an 18-month period; an individual loan limit of $78,277; the requirement that a first mortgage must have 24 months' seasoning; and it has to be for the borrower's primary or principal residence — it should not have a meaningful impact on the market, said Bose George, an analyst with Keefe, Bruyette and Woods, in a flash note.

"Any longer-term impact would depend on whether this program is eventually rolled out more broadly," George said. "Finally, if interest rates fall meaningfully before then, there will likely be less demand for a home equity product as the economics of doing a cash-out refinance would become more attractive."