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Meredith Whitney wrote in the FT that the housing proposal could secure nearly $1 trillion in financing for homeowners.
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The idea is for Freddie Mac to begin purchasing secondary mortgages, offering borrowers a cost-effective way to leverage their capital.
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Homeowners have few options for doing this because there aren't many willing buyers.
An idea is gaining ground at one of America's largest government-backed mortgage lenders that could open up a huge new lifeline to homeowners, writes Meredith Whitney in the Financial Times. wrote.
“The proposed measures could start pumping nearly $1 trillion into consumers' wallets as early as this summer. That could reach $2 trillion by fall,” Whitney wrote. .
That is if Freddie Mac secures regulatory approval to operate in the second mortgage (also commonly known as home equity loan) market. If given the green light, the plan would amount to a huge stimulus package but would not add a penny to the national deficit, the Wall Street Oracle explained.
Under the plan, Freddie Mac would begin buying second mortgages and potentially package them into bonds much like current first mortgages. Freddie Mac provides liquidity in the mortgage market at scale, so the move could encourage more banks to extend lending to their customers.
Whitney points out that Americans are sitting on vast and growing housing equity, much of which is untapped. Making home equity loans more widely available would especially benefit older Americans, who carry more debt than other age groups and are at increased risk of financial shocks.
Approval will also occur in due course. The proposal said homeowners who want to leverage their equity have limited options, meaning that few are benefiting from the rising housing market.
“For many homeowners who purchased or refinanced their homes when mortgage rates were low, today's traditional cash-out refinances pose a significant financial burden because they must refinance their entire loan balance at the new interest rate. “The interest rates are likely to be much higher.”
Freddie Mac's participation aims to provide a cost-effective alternative. Whitney said part of the question of why there are so few affordable options for households is that many bank lenders reduced their mortgage exposure after the 2008 financial crisis, a result of the Great Financial Crisis. It is said that
Whitney estimated that Freddie Mac's entry into the market will make $980 billion in home equity loans available to Americans, increasing that amount to $3 trillion, with Fannie Mae and Ginnie Mae following suit.
“By opening up the second mortgage securitization market, not only would more financial institutions be more likely to originate loans, but more financial providers would significantly lower costs for borrowers. “It will also provide a significant stimulus to the economy,'' Whitney said. and consumers who appear to be slowing down without adding a penny to government debt. ”
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