The move could provide borrowers more favorable terms than those of private credit markets, offering a cheaper loan option than cash-out refinancing. The rule is specifically responsive to the higher interest rate financing environment that is putting the squeeze on the housing sector.
“In the current mortgage interest rate environment, a closed-end second mortgage may provide a more affordable option to homeowners than obtaining a new cash-out refinance or leveraging other consumer debt products,” the Federal Housing Finance Agency (FHFA) wrote in its proposal.
FHFA is the federal agency in charge of overseeing Freddie Mac — formally known as the Federal Home Loan Mortgage Corporation — and Federal National Mortgage Association, also known as Fannie Mae.
Fannie and Freddie each buy mortgages and package them into mortgage-backed securities, which are purchased by investors. The sales are intended to broaden the pool of Americans who can afford home loans and keep rates lower.
In a scenario comparing the new home equity loan proposal to a cash-out refinancing option, borrowers could save $136.77 in monthly payments as a result of the new product, FHFA said.
The new type of loan is the first time Freddie Mac or any of the government-sponsored enterprises (GSEs) that underpin the U.S. housing market have offered a fundamentally new type of product since they were nationalized as conservatorships in the wake of the 2008 financial crisis.
The Hil’s Tobias Burns has more here.
