Lending Expert Weighs in on Freddie Mac Second Mortgage Buyouts

SAFE Credit Union Chief Lending Officer Tiffani Vargas says a new pilot program by Freddie Mac to purchase second mortgages will provide a new and affordable way for homeowners to tap into their equity.

The Federal Housing Finance Agency (FHFA) approved in June a limited pilot program with Freddie Mac to purchase certain single-family closed-end second mortgages. Those who qualify will be able to take cash out from lines of credit at new rates with the government-sponsored lender.

"I do think that longtime homeowners who've built up significant equity but perhaps are on a fixed income and are hypersensitive to refinancing a first mortgage in order to be able to tap into any of that equity … would benefit pretty significantly from a program like this," Vargas says. "All and all I think it's great. I love to see this kind of revolutionary thinking."

Vargas says she looks forward to seeing whether the pilot program has a significant impact for homeowners and the lending industry.

"I appreciate that it gets the conversation started and plants a seed," Vargas says, adding a revised final offering could spur Fannie Mae to follow suit with its own product. This would provide borrowers with a low-cost alternative to cash-out refinance in higher interest rate environments, she explains.

SAFE's chief loan expert gave her initial take on Freddie Mac's proposal during a recent panel discussion, "Empowering Financial Inclusion: Fintech-Credit Union Collaboration for Equity," where she also advised credit unions to take a holistic approach in reaching out to and supporting potential members with limited banking experience.

"Certainly some of what drives us is members and them telling us what they need, but it can be challenging to represent the folks you want to have as members who aren't members yet if all you are doing is listening to current member feedback," Vargas says.