Should We Stop Freddie Mac from Buying 2nd Mortgages?

[Brian J Allen]

We are all aware that the GSE’s Fannie Mae and Freddie Mac buy a large share of mortgages. This is believed to help put liquidity into the home buying process by taking these loans off the books of banks and mtg companies.

Now Freddie has started to purchase 2nd mortgages. There are some guidelines in place that limit the total exposure to 80% LTV which is good. This probably provides an adequate level of protection for Freddie.

It’s a concept that is hard to swallow. Basically, Americans are still using their houses as piggy banks, and this just gives them another way of doing that.

The argument is that it is too expensive to do a cash-out refinance if you have a 3% fixed primary loan, and this will provide options.

What we fail to realize is that equity in one’s home is a hedge against many things like a downturn in the economy, or inflation. Taking that money out and anything that leads to more people using the equity from their homes and reduces the friction to that process is not good in the long run.