Federal Housing Finance Agency by F Delventhal is licensed under CC BY 2.0 DEED

Today, Americans for Tax Reform and a coalition of center-right advocacy organizations sent a letter admonishing the Federal Home Loan Mortgage Corporation’s (Freddie Mac) arbitrary plan to purchase single-family second mortgages. The proposal, which the Federal Housing Finance Agency (FHFA) has the authority to approve or deny, would saddle Americans with more unnecessary debt, and make the U.S. housing market more reliant on the federal government and ultimately taxpayer dollars. 

The letter was signed by Americans for Tax Reform, Americans for Limited Government, Americans for Prosperity, American Commitment, Center for a Free Economy, Competitive Enterprise Institute, Consumer Action for a Strong Economy, Free Enterprise Project, Frontiers of Freedom, Hispanic Leadership Fund, Less Government, National Taxpayers Union, Rio Grande Foundation, The American Consumer Institute, 60 Plus Association, and The American Association of Senior Citizens. 

You can read the full letter here

You can also read the full letter below:

May 22, 2024

Re: Freddie Mac Proposed Purchase of Single-Family Closed-End Second Mortgages (Docket No. 2024-N-5)

Dear Director Thompson:

Americans for Tax Reform (ATR),[1] and the undersigned organizations, have strong concerns with the Federal Home Loan Mortgage Corporation’s (Freddie Mac) arbitrary plan to purchase single-family closed-end second mortgages. The proposal allows Freddie Mac to purchase second mortgages if it already owns the first mortgage.[2] The Federal Housing Finance Agency (FHFA) should reject the proposal because it is likely it will burden taxpayers with backstopping future losses on mortgage payments, which will be used to justify tax increases in the future. The proposal will also incentivize homeowners to acquire two mortgages—saddling Americans with unnecessary debt. 

The proposal weakens stability in mortgage financing. Providing lower cost options for borrowers via government intervention will only distort the balance of supply and demand in the U.S. housing market. It also encourages borrowers to take on more debt. If it so happens that a borrower is unable to make payments on a second mortgage, Freddie Mac would have to absorb the losses. Ultimately, taxpayers bear the brunt of these losses because Freddie Mac has been in conservatorship for over fifteen years and is backstopped by stock warrants owned by the U.S. Treasury Department.[3] One article points out that “[t]axpayers are standing behind some $9 trillion in mortgages. As government grows, so does the taxpayer backstop.”[4] If the proposal is finalized Freddie Mac would be incentivizing borrowers to take on second mortgages instead of refinancing. This will crowd out private cash-out refinancing and increase borrowers’ reliance on Freddie Mac-backed mortgage financing. Taxpayers, borrowers who prefer cash-out refinancing, and lenders that offer cash-out refinancing aim to lose the most. 

The provisions in the proposal would negatively impact competitiveness in the U.S. housing market. The proposal claims that Freddie Mac-backed second mortgages are a better option than cash-out refinancing in the current interest rate environment. However, FHFA fails to consider how these financing options would fare once the Federal Reserve (Fed) starts cutting the federal funds rate.[5] If the Fed starts cutting rates by the end of 2024, the option for cash-out refinancing may turn out to be a better option for borrowers. Instead of emboldening government power when monetary policy is tight, FHFA should step back and allow the market to dictate the supply and demand equilibrium in the housing market. Until Freddie Mac is released from conservatorship, every decision implicates taxpayers and conditions the market to expect government backstops. This creates a significant moral hazard problem. The market has “perceived the GSEs’ credit guarantee to be as good as a government guarantee because of the tight link between the GSEs and the federal government.”[6]

The proposal recklessly claims that Freddie Mac can securitize second mortgages and thus limit the amount of risk it will hold on its balance sheet. One paper finds that “the current practice of government-sponsored securitization can exacerbate the intensity and frequency of financial crises.”[7] Depository institutions are more likely to leave less risky mortgages on their balance sheets to be compliant with regulatory capital requirements. This results in the creation of structured products composed of “mortgages with higher default risks.”[8] Instead of limiting risk, the process ends up “undermining the goal of creating a safe asset.”[9] The FHFA’s statement that “credit guarantee and experience securitizing mortgage loans” is an advantage, falls short of an adequate justification for why Freddie Mac should be allowed to purchase second mortgages.[10]  

FHFA should not let this proposal proceed. Economic uncertainty could lead to a situation where the Fed lowers interest rates at an unanticipated time. In a free market this may incentivize more borrowers to look at cash-out refinancing instead of second mortgages. If Freddie Mac is allowed to buy second mortgages, this will distort the U.S. housing market and subject borrowers and lenders to be more reliant on taxpayer-backed financing. A U.S. housing market that is teetering on the backs of the American taxpayer is a disaster waiting to happen. 


Americans for Tax Reform 

Americans for Limited Government 

Americans for Prosperity 

American Commitment 

Center for a Free Economy 

Competitive Enterprise Institute 

Consumer Action for a Strong Economy 

Free Enterprise Project, National Center for Public Policy Research

Frontiers of Freedom 

Hispanic Leadership Fund 

Less Government 

National Taxpayers Union

Rio Grande Foundation 

The American Consumer Institute 

60 Plus Association

The American Association of Senior Citizens 

[1] ATR is a nonprofit, 501(c)(4) taxpayer advocacy organization that opposes all tax increases and supports limited government, free market policies. In support of these goals, ATR opposes heavy regulation and taxation of financial services. ATR was founded in 1985 at the request of President Ronald Reagan.

[2] 89 FR 29329. 


[4] https://www.wsj.com/articles/yellens-new-too-big-to-fail-firms-mortgage-housing-market-43c47f35?st=dnb9popw12rsri9.

[5] 89 FR 29331

[6] https://www.nber.org/system/files/working_papers/w24844/w24844.pdf

[7] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4821449

[8] Id.

[9] Id. 

[10] https://www.federalregister.gov/d/2024-08479/p-45.