The government-sponsored enteprise's proposal "has merit" in the current interest-rate environment given that borrowers with low-rate first-liens have been reluctant to get new primary mortgages, Kroll Bond Rating Agency said in a new report, echoing its stated aim.
However, the rating agency also raised questions about "the potential effect of the GSE program on PLS," the agency said, referring to the private-label securities market.
If utilized at both Freddie and fellow government-related mortgage investor Fannie Mae, almost 60% of closed-end seconds in the private-label securities market could be eligible, according to the report.
As a result, "the PLS market could end up with a larger share of CES with more negative credit attributes and is likely to become more concentrated with home equity line of credit products," the rating agency said.
The new second-lien PLS market is "small but growing," the report noted, indicating that in the first quarter, it constituted about $8.7 billion in securities.
Freddie has said it would only test the purchase of closed-end seconds on properties where it already bought the associated primary mortgage. A lot of open questions remain about how it would price and underwrite the loans that could influence its impact on PLS.
The enterprise has debated
"In general, PLS markets have capably absorbed the current flow of second-lien securitization volumes with spreads in line with the remainder of RMBS 2.0," the rating agency found in its report.
That said, securitization could benefit in some ways from Freddie and/or Fannie's participation, "via the creation of efficiencies and standardization similar to those in other mortgage products currently offered by the agencies," KBRA said.
Freddie's regulator, the Federal Housing Finance Agency, has been collecting feedback on its pilot proposal under a
