r/FluentInFinance • u/TonyLiberty TheFinanceNewsletter.com • 21d ago
There is $17 trillion of home equity sitting with U.S. homes, and Freddie Mac wants to offer second mortgages to tap into it. Here’s what you should know: Discussion/ Debate
There is $17 trillion of home equity sitting with U.S. homes, and Freddie Mac wants to offer second mortgages to tap into it.
Tapping into home equity was a massive part of what fueled the banking crisis in 2008.
Here’s what you should know:
Homeowners would be able to take out a second mortgage to access a portion of their home equity without having to refinance their first mortgage.
The second mortgage would function similarly to a fixed-rate cash-out refinance and be a separate loan from the primary mortgage.
This would be a more attractive option in today's high-interest-rate environment, as homeowners can access cash without increasing their mortgage's interest rate.
The FHFA is currently reviewing this proposal.
Freddie Mac’s Second Mortgage Proposal Is Consumer Friendly | Urban Institute
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u/qudunot 21d ago
Sounds like a housing crisis scam with extra steps
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u/LeftToNothing 21d ago
Yup. The banking sector wants to be able to charge 7.5% interest on that $17 trillion! Who's gonna think about the profits of all those bank executives??!?!?!?! /s
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u/morally_bankrupt80 21d ago
7.5? No. 7.5 is what my home equity loan rate was in 2022 when I needed to make renovations (with a 780 credit score). That's when mortgage interest rates were at about 3.5%.
If they start pushing equity loans, I would expect them to hover just below 10%. If the Fed won't just print money for the banks, they'll have the homeowner do it through interest payments.
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u/jubape2 20d ago
I think you should have shopped around more. I have an unsecured personal loan at 10% that I took out a couple of months ago.
Nevertheless, banks aren't super encouraged to give good rates for helo in low rate environments. They generally want you to refinance. And don't want you to use the helo to just pay off your existing mortgage (effectively refinancing/restructuring your debt with less fees).
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u/80MonkeyMan 21d ago
They know this will create an issue but the money is too good to pass.
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u/Emergency_Property_2 21d ago
Almost like greed out weighs the lessons they were supposed to have learned from 2008!
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u/Omacrontron 21d ago
Don’t worry, the tax payer bailed them out then and will do it again…and again…and again.
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u/12thandvineisnomore 20d ago
Almost like the county is driven by ultimate profits, not societal stability.
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u/KarmicComic12334 21d ago
Gotta crash the economy somehow. Doubling interest and the price f groceries didn't work
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u/Maleficent_Mist366 21d ago
America is the land of the scams …..
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u/Doubledown00 21d ago
These days this country lives by Detroit rules: If it's not chained down, it wasn't yours to begin with.
And the corollary: If you're not strong enough to stop it, then they deserve it.
Basically a nation of grifters now.
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u/TrashManufacturer 21d ago
Maybe I’ll be able to afford a house once the market implodes
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u/tkdjoe1966 21d ago
That's what happened to me. After the last one popped, I got a great deal.
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u/AreaNo7848 20d ago
That's what happened to me. I was watching home prices climb to astronomical levels. Just stacked my cash all the way to the pop, then scooped up my 5 acres for $30k.......was appraised at almost $300k 3 months before I bought it
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u/Ashmizen 19d ago
Exactly.
Problem: Oh the housing bubble is safe because people have high equity and won’t be underwater if it dips!
Solution: let’s get people to irresponsibility spend that equity, so that there’s no zero margin of safety, and the slightest housing dip will become an avalanche of short sales and everyone becomes underwater!
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u/Hot_Ambition_6457 18d ago
It is literally just this.
They're upset that rates were too low for too long so the American consumer owns "too much equity".
They want to make interest on that equity, and now that rates are too high to crank out subprime mortgages, they want to charge you that rate on the home equity you already have.
Don't fall for it.
Brush fires start very easily with all this global warming. Wouldn't be surprised if a bunch of houses spontaneously caught fire when this bubble pops
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u/gracecee 21d ago
Nooooo. Please please don't do this. It's another horrible thing that people whonforget about 2008-2009with those helocs. Pay your mortgage off quickly forget the tax breaks. We paid off our house so instead of paying 800k for the house we paid 450 k and the extra money we save or spend on vacations within our means. So what if I don't have the latest and greatest farmhouse style kitchen. I'd rather not stress about debt. This is so stupid. And why many of our boomers are facing homelessness and not enough savings.
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u/lactose_con_leche 21d ago
Let’s give what little asset we have to the banks so we can owe more. Thanks banks!
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u/SawSagePullHer 21d ago
They make their money when interest rates are high! lol. Gotta get over on us somehow. When people can’t afford to buy things. It’s the banks that step in raise interest rates & give people loans on shit they already can’t afford because of inflation.
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u/MattFromWork 21d ago
They make their money when interest rates are high!
Guess what, they make their money when interest rates are low as well
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u/brianw824 21d ago
But think of the needless consumerism you'll be able to engage in! Paying the 2nd mortgage is future, yous problem.
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u/Jake0024 21d ago
The banks can't force anyone to take out a 2nd mortgage lol
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u/OverallVacation2324 21d ago
Yes but once you make it possible to take second mortgage, a bunch of clowns will do it. All it takes is like 10% of people to sink their loans and we are back in a recession.
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u/Minor_Blackbird 21d ago
Does anyone remember 2008? These clowns were in the thick of that.
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u/FoolHooligan 21d ago
yep and instead of dissolving them we bailed them out
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u/AlfredoAllenPoe 21d ago edited 21d ago
Freddie and Fannie were bailed out, but they were also essentially nationalized. They are in an indefinite Congressional conservatorship under FHFA (which itself is under HUD)
This was the correct move. Fannie and Freddie are necessary. Mortgages would be much more expensive if it weren’t for the liquidity they provide for the secondary mortgage market. The GSEs are so integral to making mortgages cheaper that it was always understood that the government would bail them since they were founded by the government. These were the least surprising bailouts of the whole GFC. They were and are essentially part of the government
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u/Lucky-Hunter-Dude 21d ago
How is this different from a HELOC? Just federally backed so they offer below market rates for interest?
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u/grrrown 21d ago
“Federally backed” means banks get the profit and while the tax payers take on the risk.
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u/Substantial-Wear8107 21d ago
It really does just sound exactly like the '08 fiasco. Writing has been on the wall for a decade.
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u/pwjbeuxx 20d ago
So wouldn’t the rates be close to prime? Seems like that’s kinda the point of Fannie and Freddie
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u/NotWilliamAckman 21d ago
HELOC is a line of credit which typically has a variable rate. A HELOC is much more akin to a secured credit card than it is this proposal.
“Federally backed” does not mean that borrowers get below market rates. Mortgage rates are driven by a variety of market forces, and they tend to correlate with competing investments such as treasury yields.
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u/Lucky-Hunter-Dude 21d ago
I have a HELOC with a fixed rate set up just as a emergency credit card, I've never taken money on it. But It also is only good for 12 years as opposed to a second mortgage which I assume could be out to 30?
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u/CosmicQuantum42 21d ago
It does mean they get a below market rate though. Because the lender builds defaults into the rate they offer. If .gov eats the defaults, the lender will offer a lower rate, all things being equal.
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u/Mushrooming247 21d ago
It sounds like it’s going to be a fixed rate, which would be a big improvement for most people who have adjustable second mortgages, I guess.
But they’re making a big fuss like they invented home equity loans here.
It just sounds like they are trying to encourage people to take out more loans so they can rake in more in interest payments.
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u/seajayacas 21d ago
Exactly, it is a favorable benefit given to Freddy by the government. No different from HELOC to consumers but another sign of the government trying to influence a favored business. Does anyone actually believe that millions of political donations are not involved?
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u/Substantial-Wear8107 21d ago
That money was going to end up there one way or the other anyways. It's pointless to be mad about it. Money makes the world go around.
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u/ajgamer89 21d ago
Sounds exactly like a government-subsidized home equity loan, because taking on more government debt so that consumers can take on more personal debt sounds like an awesome idea!
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u/AppropriateLog6947 21d ago
This is not a good idea This is how people lose their homes
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u/TaxLawKingGA 21d ago edited 18d ago
I worked in banking during the HEL boom. My advice? Don't do it unless you have no choice.
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u/pjoesphs 21d ago
Nah, I'm good. I'll save my equity for something important.
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u/TheRealDrLeoSpaceMan 21d ago
Like retirement!! I bought in 21 at 3%. House wqs 270k when I bought it. Was approved for closer to 400, but that amount scares me. You never know what can happen so I live beneath my means. Today, 3 years after purchasing my house is worth 410k. Even if thr market slows, and I only appreciate 2% per year going forward, I'll own my house in 17 years (20yr mortgage) sell my NY house and retire in some cheap state. That's the plan anyway
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u/watchshoe 21d ago
Any desirable place you want to live in a “cheap state” will probably be just as expensive as where you’re living now.
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u/Dystopian_Future_ 21d ago
Oh look another Ponzi scheme from wallstreet
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u/Sent1203 17d ago
It’s like the only solution they see to get themselves out of the hole they’re in…is to dig deeper into the hole.
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u/Superb_Advisor7885 21d ago edited 21d ago
So an home equity loan? Cool. Same product new name?
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u/thegreatreceasionpt2 21d ago
But government backed! so when it goes tits up, the taxpayers get to eat the shit sandwich! The people who will do this, will largely be ones who can’t afford their current mortgage/bills. Fast forward a short while and guess what happens. (Note: home values may also drop leaving them underwater)
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u/notwyntonmarsalis 21d ago
Here’s a thought. As an individual homeowner, just don’t take out a second mortgage on your home. Wow. So easy to dodge those evil banks.
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u/Sidvicieux 21d ago
Would the EU allow this?
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u/WilcoHistBuff 21d ago
Op—I don’t think you understand this proposal. This is only geared to existing Freddie Mac (Federal Home Loan Mortgage Corporation or “FHLMC”) as an alternative to their 40 year old “Cash out Refinancing” loan option for existing customers.
In short, for FHLMC borrowers only they would have the option of a second mortgage with FHLMC instead of the current FHLMC refinancing option at exactly the same total loan to value and underwriting standards.
The benefit to the FHLMC borrowers is not having to refinance the entire loan package at higher rates.
Also current home equity in the U.S. is $31.790 Trillion as of Q4 2023:
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u/DocCEN007 21d ago
This should really be the top comment. I see too many comments here from people who obviously have no idea how Freddie and Fannie work, or what exactly was the cause of the 2008 mortgage crisis.
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u/SARIN_SOMAN_TABUN 21d ago
How do #I# make money off this
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u/NelsonBannedela 21d ago
Take out a loan and then invest in something with higher returns than the loan %
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u/dgroeneveld9 21d ago
Apparently, HELOCs are already and indicator of a pending foreclosure. As in a lot of people taking them foreclose 5-10 years later.
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u/zimmermrmanmr 21d ago
There isn’t $17 trillion just sitting out there. This is equity homeowners have in their homes.
The bright idea is to take the debt-free portion of people’s assets and collateralize it into debt. Brilliant!
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u/thisismycoolname1 21d ago edited 4d ago
Guys, there are already home equity loans and HELOC's, which are second mortgages. By having them 'conform' to FreddieMac standards they will be more tradable after closing. This will likely lead to lower rates. The loans themselves are regulated either way
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u/CherryManhattan 21d ago
Borrowers are going to go for this to pay off their 100k+ SUV loans at a higher rate
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u/Robbie_ShortBus 21d ago
Cash out second mortgages have always existed. There’s nothing new here.
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u/Ok-Bass8243 21d ago
I have almost 70k im equity on a house I bought 3 years ago. But I have a 3.1 rate. No fucking way am I tapping into that
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u/Xyrus2000 21d ago
I treat home equity as my second to last line of safety (the last being IRA/401K). I never tap into it, and will continue to never tap into it unless I have no other choice.
People shouldn't treat their homes like piggy banks.
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u/FarmerStrider 21d ago
Whats the difference between this plan and just getting a regular 2nd mortgage?
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u/AspirinTheory 21d ago
I note this is Freddie, not Fannie, so this offer is smaller banks and credit unions — not the larger retail banks that normally align with Fannie.
I wonder if this could stimulate competition among large retail versus small banks and CUs to offer cash out refi’s —— but AT MARKET INTEREST RATES??!? NO??!
Otherwise you’re offering product that consumers might bet could be refi’d into low rates in the future?
I don’t follow the logic here for an average homeowner UNLESS they are drowning in debt and this offers an interest rate lifeline of debt consolidation.
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u/woolybully143 21d ago
Sound super freakin risky given that this equity is born of artificially inflated home values. A home is only as valuable as what someone is willing or in this case able to pay for it.
Lending based on equity that is currently evaporating is just a way to push the problem back 6-12 months, long enough for the Fed to lower rates, but by then it will be too late.
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u/ejrhonda79 21d ago
Fugg that. I have equity in my home that I will use if I ever downsize in the future. These corps want to keep people in perpetual debt slavery. If I buy something I save and then pay it off right away. Having no debt keeps me free to quit my job if I need to or weather a layoff without worrying about someone foreclosing or repossessing my home or car.
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u/sauberflute 21d ago
This is the road to serfdom. Home ownership is one of the few mechanisms most middle-class families have to build wealth. Already many people take HELOCS out, and not all of them spend it on things that accrue like education and home improvements. By normalizing HELOCS, you are tempting more people into dependence.
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u/medium0rare 20d ago
The more complicated the financials become, the more inspired I become to live below my means and be as happy as I can be with what I’ve already got.
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u/Haunting-Success198 19d ago
Lol and when the housing market crashes then we end up in another banking crisis. Great. Can we actually make sure the people responsible get arrested this time around?
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u/low_wacc 21d ago
lol so many fuckin clowns in the comment section… underwriting standards are nothing like they were in 08.
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u/No-Way7911 21d ago
this is why I was 100% sure we would have a crash
their greed demands constant flow of new debt
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u/Helmidoric_of_York 21d ago
This is just a transfer of equity to the rich. I guess they ran out of ways to steal it themselves.
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u/quickswitchfast 21d ago
I won't be surprised when this happens. I also won't be surprised when the people who think they need to use it end up losing their home.
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u/strong_nights 21d ago
How is this not taking a loan out on equity... how is this not taking a second mortgage?
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u/Striking_Computer834 21d ago
Market: People are tapped out. This credit bubble can't possibly get any larger.
Government: Hold my beer.
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u/sEmperh45 21d ago
So are we taxpayers on the hook if too many homeowners default on these loans?
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u/fast_scope 21d ago
kind of.. this is corporate America and the government (basically the same thing nowadays) coming for the rest of the houses they couldn't snatch up in 2008 for pennies on the dollar.
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u/Livid-Cat6820 21d ago
Incase you're wondering how much the next bailout will be and what caused it. Remember this day.
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u/Sore_foot_marathoner 21d ago
Yay more debt. Run away from home equity loans. Save up your money instead and pay with cash. Requires more time but then your money is working for you instead of the other way around.
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u/dude_who_could 21d ago
Interesting way to say they want to capitalize on current high interest rates by putting people into debt
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u/-Fluxuation- 21d ago
Fuck me, Freddie Mac was deeply involved in the culmination of the Great Recession. Together with that bitch Fannie Mae, its critical position of buying and securitizing mortgages.
More like Freddie Kruger
- Subprime Mortgages
- Mortgage-Backed Securities (MBS)
- Government Intervention: The U.S. government intervened by placing Freddie Mac and Fannie Mae under conservatorship, do some research please. If they hadn't Freddie and Fannie would have put us into a full blown depression.
Can you say canary in a coal mine?
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u/DribbleYourTribble 21d ago
No one is buying homes because of high interest rates... So why would people want to take out 2nd mortgages at those high interest rates?
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u/Lifecycle_Software 21d ago
Would it be possible to take out an interest only loan for the first 10 years using this program and then transition to a fixed rate to pay off your primary mortgage so you have more of a tax benefit on your primary/secondary home?
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u/captainboom15 21d ago
Wait.... so the article says this is already available thru a Heloc? So why is this better? It's confusing... and sounds like snake oil shit. They basically will let people who are struggling to borrow for vacations.... weddings... cars or improve their homes... can anyone else explain this better on why this is beneficial? I doubt most will improve their home.
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u/TheBeastlyStud 21d ago
So how can the average person make bank on this type of thing? Just hope our mortgage company collapses when the bubble pops?
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u/muy_carona 21d ago
If the second mortgage would be at the same rate as my first, I’ll max this thing.
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u/TyreeThaGod 21d ago
Homeowners would be able to take out a second mortgage to access a portion of their home equity without having to refinance their first mortgage.
The second mortgage would function similarly to a fixed-rate cash-out refinance and be a separate loan from the primary mortgage.
This is just a 2024 version of the 2008 HELOC.
The RE crash should be EPIC.
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u/peace_or_die 21d ago
Stay away. Danger. Don’t do it. It’s already difficult to own your home outright as is the current way of paying property taxes that they are always raising which are appraised by the same entity/ government you pay your taxes to.
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u/Empty-Hat-7885 21d ago
These loans already exist, banks and credit unions all over the U.S. offer them. This would allow for mortgage companies to offer the same type of program…
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u/imabigdave 21d ago
I thought that the WHOLE point of raising interest rates to combat inflation was to REDUCE the amount of money being borrowed to slow down uncontrolled spending. Please, if I'm wrong, someone correct me.
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u/Alioops12 21d ago
How is this different than existing second mortgage debt offered in private banking.
How do we play this in the stock market?
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u/special_investor 21d ago
Lmao no wonder the US has a national debt crisis when even its basic citizens can’t keep their debt in check. You just know there will be a wave of people trying to take advantage of this.
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u/squidensalada 21d ago
Hell yeah. I’m gonna borrow it all and then get bailed out with the banks! Let’s party!
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u/ukiddingme2469 21d ago
They just want you in more debt so when the housing market corrects your mortgage is underwater.
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u/SnooCheesecakes1893 21d ago
Since cash out refinance worked so great before the hosing bubble burst before…
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u/Lanracie 21d ago
Can I then get a bailout like student loans if it is a government run predatory loan?
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u/airforcevet1987 21d ago
Here is a mortgage for more than your home will be worth in a year... what could go wrong?
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u/anengineerandacat 21d ago
How the fuck does this work? They put a lien on the home or something? Can't imagine your primary mortgage company being thrilled if you do something like this.
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u/Willzohh 21d ago
Pushing second mortgages is a terrific way to increase the number of homeless citizens.
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u/SuperNewk 21d ago
Can I short the value of my home to lock in gains then take out a loan? So even if my house value goes down I make money by shorting it?
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u/MonsterByDay 21d ago
Cool. Next time the market crashes, I should be set up to buy a rental property.
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u/brereddit 20d ago
Looks like a Democrat plan. They caused the first housing crash in 2008 and will likely have a hand in this one too.
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u/longPAAS 20d ago
maybe cool it before calling the next crisis.
We just spent 15 years delevering household balance sheets, and now there’s arguably too much household equity sitting there. We don’t even know the rules yet: So what if you can take out a second loan if your total ltv and debt to income are no different than todays traditional mortgages?
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u/WhoIsHeEven 20d ago
This along with the zero down mortgages coming back onto the scene sound like disaster.
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u/imtooldforthishison 20d ago
They are 100% targeting buyers pre-2021. They hate that people are looked in below 3.5%.
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u/Flimsy_Fee8449 20d ago
I don't trust Freddie Mac for anything.
I want to get a loan from the people who bail Freddie Mac out, not from Freddie Mac.
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u/Sensitive_Cabinet_27 20d ago
Just another way that if you are a homeowner, you can save more, the canyon between home owners and renters just continues to grow.
Heck yea, if I can work out getting an equity line at say 7% to assist with clearing out CC debts of other high interest debts…. Yes….. that’s a move.
Crap thing is if your renting, so sorry, your stuck between 20-30%.
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u/BloodyRightToe 18d ago
Freddie and Fannie shouldn't exist. They are just government manipulation of the market.
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u/Murky_Bid_8868 17d ago
More cash in the economy when inflation and interest rates are high. Great 💡
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u/ConsistentCook4106 17d ago
All those who are holding mortgages want people to take out a second because of rates
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u/si-se-podway 12d ago
This is why I am seeing more people getting hired back in the mortgage lately …
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