Provide Your Borrowers a Flexible Secondary Financing Option
May 28, 2015
For many of your borrowers – including first-time home buyers, low- to moderate-income borrowers and families in underserved markets – buying a home may not be possible without secondary financing.
Affordable Seconds® are subsidized secondary financing and provide opportunity for more borrowers by enabling them to use various sources for down payment, closing and financing costs and prepaid costs.
To assist even more borrowers with financing beyond our Home Possible offering, we're now permitting Affordable Seconds as a secondary financing option for all eligible first lien mortgages.
Benefits of Affordable Seconds
Affordable Seconds can help put buying a home within reach for your potential borrowers. Through Affordable Seconds, you can:
- Increase originations.
- Collaborate with public agencies and nonprofits.
- Strengthen your community investment.
- Support the purchase money market.
The following Q&A provide information about Affordable Seconds requirements and can help you counsel borrowers:
What are the requirements for a mortgage with an Affordable Second?
A mortgage with an Affordable Second must be a fixed-rate mortgage or Adjustable Rate Mortgage (ARM) with an initial fixed-rate period of five years or greater, a purchase or “no cash-out” refinance transaction and secured by 1- to 4-unit primary residence.
Does Freddie Mac purchase Affordable Second mortgages?
No. Freddie Mac purchases eligible first lien mortgages with Affordable Seconds that meet our criteria.
What are the allowable sources for an Affordable Second?
Affordable Seconds must come from one of the following sources:
- Any authorized federal, state, local or municipal government authority or agency.
- A nonprofit community or religious organization other than a credit union.
- A regional Federal Home Loan Bank under one of its affordable housing programs.
- The borrower's employer.
Additionally, the source of an Affordable Second must not be the property seller or another interested party to the transaction.
Are there restrictions to the Affordable Second interest rate?
The interest rate may be up to 2% higher than the interest rate of the first mortgage.
What are the repayment requirements for an Affordable Second?
Borrowers who need down payment assistance with their mortgage can use non-profit organizations, public agencies and government home loan assistance programs. While the repayment of Affordable Seconds depends on the agency and its repayment requirements, many of them allow for “step down” forgiveness of the loan. “Step downs” are when a borrower stays in their home for a certain number of years, and the agency forgives a portion of the second mortgage each subsequent year.
Does the delivery fee for mortgages with secondary financing apply to mortgages with Affordable Seconds?
No. The secondary financing delivery fee is not assessed on any mortgage with an Affordable Second meeting the requirements of Freddie Mac Single-Family Seller/Servicer Guide Section 25.2.
How can my borrowers find Affordable Secondary Financing Sources?
- HUD information on secondary financing sources
- HUD listing of approved non-profits that offer affordable secondary financing
For more information, visit the Affordable Seconds Web page.