Freddie Mac seeks regulatory approval to back home-equity loans

FREDDIE Mac is seeking regulatory approval to expand into guaranteeing second mortgages, a shift that would potentially drive down costs for Americans seeking to borrow against the equity in their home.

The push is a sign of the impact that higher interest rates are having in the mortgage industry, where homeowners sometimes turn home equity into cash by borrowing slightly more than they owed when refinancing entire mortgages.

But those types of refinancings have become less of a draw because many homeowners have locked in rates well below those being offered now. Instead, they can rely on home-equity loans, or revolving lines of credit secured by their houses. 

The Federal Housing Finance Agency, Freddie Mac’s regulator, on Tuesday (Apr 16) said it is seeking public comments on the company’s request to back mortgage bonds supported by these loans. That would likely lower funding costs for lenders and result in cheaper rates for customers.

Americans have ample home equity to tap after a significant run-up in home values. The share of mortgaged homes that have significant equity stood at 46.1 per cent at the end of last year, up from just 26.7 per cent in the third quarter of 2019, according to data provider Attom. 

Bank of America strategists on Wednesday (Apr 18) said that companies may step up their lending in anticipation of the shift, estimating that consumers could borrow some US$850 billion through second mortgages in connection with Freddie Mac loans. BLOOMBERG