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  • Comment Detail

  • Date: 05/05/24
    First Name: John
    Last Name: Gables
    Organization: N/A
    City: N/A
    State: N/A
    Attachment: N/A
    Number: 2024-N-5

  • Comment

    I am writing to express significant concerns about the risks and negative consequences of allowing Freddie Mac to purchase closed-end second mortgage loans as a new product. While there may be some benefits for existing homeowners, the costs and risks to affordable housing objectives, financial stability, and generational equity seem to dramatically outweigh any potential positives. I strongly urge FHFA to reject this proposal.

    From a credit risk perspective, layering closed-end second liens on top of existing first mortgages substantially increases the risk to Freddie Mac and the housing finance system at large. These loans inherently have higher combined loan-to-value ratios, subordinate lien positions that suffer greater losses in a foreclosure, shorter terms that reset risk sooner, and a cash-out nature that correlates with higher default rates historically. While some parameters like CLTV caps provide some guard rails, this is undoubtedly a riskier product that runs counter to safety and soundness principles, especially given today's uncertain housing market conditions.

    Perhaps more critically, this product poses serious negative consequences for affordable housing objectives and equitable wealth-building that should be central to FHFA's mandate. By making it easier for existing homeowners to tap home equity, this will inevitably increase housing demand and put upward pressure on home prices at a time when housing costs are already at crisis levels. This places even greater barriers in the way of prospective first-time and first-generation homebuyers, disproportionately impacting younger demographics like millennials as well as minority and lower-income households. Rather than democratizing access to housing wealth, it doubles down on consolidating it among those who already own homes.

    The proposal touts potential benefits to market liquidity, but these are outweighed by concerns that this further entrenches the damaging pattern of allowing Wall Street securitization demands to overshadow Main Street housing needs. There are far more equitable ways to support market liquidity and stability that don't come at such a direct cost to affordable homeownership.

    In essence, the true winners here seem to be Freddie Mac through fee income, and private lenders through a new product line, while the biggest losers are the very households FHFA and the Enterprises are mandated to support - renters, first-time buyers, minorities, and those for whom homeownership and housing wealth remain out of reach. This misalignment with FHFA's mission, coupled with heightened credit risk, makes approval of this product difficult to justify.

    Rather than enabling riskier loan products geared toward extracting more equity from existing owners, I urge you to explore options that expand access to wealth-building homeownership opportunities and achieve meaningful progress on the affordable housing crisis facing this nation. Those should be the priorities, not layering more leverage into an already unsettled housing market.

    I appreciate your consideration of these perspectives opposing the addition of this new and risky product type. Working families and historically underserved communities deserve housing finance policies that create onramps to sustainable homeownership - not put up more obstacles. I respectfully call on FHFA to reject this proposal.​​​​​​​​​​​​​​​​