MBA Asks FHFA to Address Outstanding Questions Before Approving Freddie Mac Second Mortgage Proposal

The Mortgage Bankers Association posed several questions to the Federal Housing Finance Agency about Freddie Mac’s proposed purchase of single-family closed-end second mortgages. 

MBA was pleased to see that this proposal will be following the process established in FHFA’s New Products and Activities Final Rule, MBA Senior Vice President of Residential Policy and Strategic Industry Engagement Pete Mills said in a comment letter to FHFA Director Sandra Thompson. “[But] there are several critical details that remain unknown and these missing elements make it difficult to fully assess how this new product would fit into the current market or its potential impacts and benefits. To ensure this new product addresses mission-related needs in the market and does not supplant existing similar offerings or cause unintended market disruption, MBA recommends that FHFA address outstanding questions before rendering a decision on product approval.”

MBA maintains that key variables missing from the proposal make it difficult to determine the full scope of effects, especially given a 30-day comment period. Our questions:

What does Freddie Mac estimate base loan pricing will look like? Will pricing be equitable for lenders of all sizes?

Will there be an LLPA grid, and if so, to what extent will the program be geared toward “mission” borrowers?

Will the program explicitly permit a seller other than the current servicer to originate a closed-end second mortgage?

What would be the implication of cancelation of mortgage insurance on the first mortgage?

Will Freddie Mac allow the use of Automated Valuation Models (AVMs) or property inspection waivers as alternatives to a traditional appraisal?

Will Freddie Mac allow recording via e-notes?

Will individual lenders be capped on the number of closed-end second mortgages that can be sold to Freddie Mac?

To the extent that certain large lenders are subject to volume caps on cash window delivery for first mortgages, will delivery of closed-end second mortgages to cash window-only execution option count against this cap?

Does Freddie Mac anticipate imposing a global volume cap on acquisition of closed-end second mortgages?

Has a loan amount cap that would target “mission” borrowers been considered?

What considerations have been made regarding performance of the Uniform Mortgage-Backed Security (UMBS) with only Freddie Mac currently seeking approval for closed-end second mortgages.

“We urge the FHFA to request the information that appears to be missing from the initial submission for this new product and further evaluate the issues raised in our comments prior to considering approval,” Mills said in the letter. “MBA appreciates the opportunity to provide feedback on Freddie Mac’s proposed new product and we look forward to continuing our ongoing partnership with FHFA.”