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Wall Street wants second mortgages expanded to "unleash the next big US stimulus." Is that wise?

Speaking to Fox Business journalist Charles Payne today, I provided my thoughts on Freddie Mac's recent proposal.

Back in April, Freddie Mac filed an official proposal with the Federal Housing Finance Agency, asking for permission to enter into the secondary mortgage and home equity loans market.

U.S. homeowners have around $32 trillion in home equity, while outstanding home equity loans only amount to around $400 billion.

Already, Wall Street analysts like Meredith Whitney, founder and CEO of Meredith Whitney Advisory Group, have praised the proposal, writing in the Financial Times that: “As early as this summer, a proposed move [by Freddie Mac] could begin to unleash almost $1 trillion into consumers’ wallets. By the autumn, it could be on its way to $2 trillion.”

Fox Business journalist Charles Payne asked me about the Freddie Mac proposal today on his show.

I shared a few thoughts.

Wall Street types like Whitney have framed the proposal as an economic stimulus. (Her FT article headline was: “The mortgage reform that could unleash the next big US stimulus”).

I suggested to Payne that “stimulus” demands could be premature.

After all, the Federal Reserve is still focused on the inflation side of its dual mandate, having jacked up interest rates at the fastest clip in over four decades. While inflation has decelerated from the pandemic highs, the year-over-year Consumer Price Index reading (+3.4%) is still slightly above target, while the U.S. unemployment rate (3.9%) remains tame.

Click here to view an interactive version of the map below

Second, I pointed out to Payne just how massive homeowners’ stash pile is right now.

Over the past four years, U.S. home prices tracked by the Freddie Mac House Price Index have skyrocketed by a staggering 47%. Given the current period of inflationary concerns and the recent historic rise in home prices, does the federal government truly believe that now is the best time to encourage Americans to tap into their home equity?

Supporters of the proposal argue that it would enable more Americans to access their home equity without having to refinance and lose their ultra-low mortgage rates on their primary mortgage. In their view, this would be preferable to taking out higher-interest-rate credit card debt, which is rising and has seen delinquencies rise.

I don’t hold a strong view on the proposal; I simply wanted to offer Fox Business viewers a different perspective than the 'stimulus' view that some on Wall Street have been promoting.

Have a view on the topic? I’d love to hear it: [email protected]