Comment Detail

Comment

My name is Thomas Crawford, and I am a longtime community banker and mortgage lender based in Minneapolis, Minnesota. I'm writing to express my concern about Freddie Mac's proposal to purchase closed-end second lien mortgage loans.

From the vantage point of a responsible community lender focused on sustainable homeownership, this new product raises numerous red flags that I believe FHFA should carefully consider:

Safety and Soundness Risks
As a junior lien product, these closed-end seconds inherently layer on more credit risk exposure compared to traditional first mortgage lending. The higher combined loan-to-value ratios, shorter terms resetting risk sooner, and cash-out nature increasing borrower leverage are all negative risk factors that make these riskier credits. While parameters like CLTV caps provide some guard rails, history has shown that second lien products tend to be among the first to see deteriorating performance in economic downturns. Thoughtful risk-based pricing and effective quality control will be critical.

Fair Lending Concerns
I'm concerned this product could raise fair lending risks if it ends up being disproportionately offered to or incentivized for minority borrowers as a way to financial "extract equity" from their homes. We've seen too many times where subprime and exotic products get peddled more aggressively in underserved communities under the guise of increasing access. Any blanket national pricing approach could enable disparate impacts as well. Robust fair lending testing should be a requirement.

Responsible Borrower Objectives
As a community lender, our focus is on delivering sustainable mortgage lending that helps borrowers build long-term equity over time. Extracting equity too freely, especially in a rising rate environment, runs counter to that objective. It prioritizes short-term cash needs over generational wealth creation. From a mission perspective, I would argue Freddie's focus should be on promoting mortgage products that increase affordable homeownership rates and responsible equity accumulation over decades.

Competitive Landscape Impacts
If the pricing and ease of execution make this an attractive option for lenders relative to other second lien products, it could increase the emphasis and capacity lenders devote to this product over others that may better serve affordable housing objectives in communities. That would be an unfortunate unintended consequence.

I certainly appreciate Freddie Mac's role in providing mortgage market liquidity. However, this particular new product seems to increase risks while not directly aligning with providing affordable housing opportunities or promoting sustainable homeownership and wealth building, particularly in underserved areas. Those should be the priorities.

Rather than layering on more leverage, I would encourage Freddie to explore options focused on putting equity into communities through programs that grow affordable homeownership rates, provide down payment assistance, support affordable housing developments, and emphasize safer, wealth-creating mortgage products over shorter-term equity extractions.

While well-intentioned, this closed-end second mortgage product raises substantial safety and soundness, fair lending, mission and competitive landscape concerns in my assessment. I urge FHFA to carefully weigh those factors against any potential liquidity benefits as you evaluate this proposal. The housing finance system and the households it serves deserve prioritizing opportunities aligned with responsible, sustainable lending.

Thank you for your consideration.

Sincerely,
Thomas Crawford