That is if Freddie Mac receives regulatory licence to engage in the secondary mortgage market, generally known as home equity loans. If approved, the idea would be comparable to a massive stimulus package without adding a penny to the national budget, according to the “Oracle of Wall Street”.
According to the concept, Freddie Mac may begin acquiring second mortgages and packaging them into bonds in the same way that it already buys primary house loans. Because Freddie Mac is a significant supply of mortgage market liquidity, the move may encourage more banks to offer this financing to clients.
Whitney points out that Americans are sitting on a vast and rising amount of home equity, yet little of it is being used. More readily available home equity loans would be especially beneficial for older Americans, who are incurring more debt than other age groups and are increasingly vulnerable to financial shocks.
Approval would also be timely. The plan said that choices for homeowners seeking to access their equity are restricted, implying that few are profiting from the property market’s rise.
“For the many homeowners who purchased or refinanced their homes during a period of lower mortgage rates, a traditional cash-out refinance today may pose a significant financial burden, as it requires a refinancing of the entire outstanding loan balance at a new, and likely much higher, interest rate,” according to the report.
Freddie Mac’s participation aims to provide a cost-effective option. According to Whitney, part of the reason consumers have so few affordable options stems from the Great Financial Crisis, when a big number of bank lenders reduced their mortgage exposure after the 2008 catastrophe.
Whitney projected that Freddie Mac’s entry into the market might result in $980 billion in home equity borrowing becoming available to Americans, with the figure rising to $3 trillion if Fannie Mae and Ginnie Mae follow suit.
“By opening up the securitization market for second mortgages, not only would more institutions be inclined to originate the loans, but the cost to borrowers would meaningfully decline with more finance providers,” Whitney said in a statement. “It would also provide big stimulus to an economy and consumer that appear to be slowing down without adding a dime to government debt.”