Experts said they are unsure that President Donald Trump’s instructions for Fannie Mae and Freddie Mac to begin a massive buying spree of mortgage-backed securities to push mortgage rates lower will have a dramatic impact.
On Jan. 8, Trump said he would have Fannie and Freddie buy up to $200 billion worth of mortgage-backed securities (MBS), which would nearly double their combined holdings and take them near their regulatory asset cap, Realtor.com said.
“This will drive Mortgage Rates DOWN, monthly payments DOWN, and make the cost of owning a home more affordable,” Trump said on his Truth Social.
Mortgage rates did respond favorably to the news, with daily 30-year rates dipping under 6% on last week for the first time in nearly three years.
In theory, Realtor.com said, increasing Fannie and Freddie’s MBS holdings should be favorable for mortgage rates through the laws of supply and demand. Increasing demand for mortgages makes them more valuable, encouraging lenders to originate more loans at more competitive rates, the website said.
However, with a total U.S. market for mortgage bonds estimated at around $12 trillion, it’s unclear whether the $200 billion buying program would be enough to make much of a difference in the long run.
The Fed Still Holds $2 Trillion in Mortgage Bonds
“Details remain limited, but it’s difficult to see this proposal moving mortgage rates in a large or lasting way,” Realtor.com Senior Economist Joel Berner said. “A one-time infusion of roughly $200 billion, or even a series of smaller purchases that add up to that figure, is unlikely to meaningfully alter long-term mortgage pricing.”
Commercial banks in the U.S. hold about $2.7 trillion in MBS, and the Federal Reserve still holds more than $2 trillion in mortgage bonds, three years after the central bank began reducing its MBS holdings.
While the Fed isn’t actively selling MBS, roughly $15 billion of its mortgage bond holdings hit maturity and roll off the balance sheet each month.
Mortgage Bankers Association Chief Economist Mike Fratantoni said that there isn’t enough detail yet on the proposed Fannie and Freddie purchases to have a clear sense of the market impact.
“The timing and pace of and the financing used to make these purchases would matter. However, it is likely to put some modest downward pressure on mortgage spreads,” Fratantoni said. “Particularly at a time when the Federal Reserve continues to allow its MBS holdings to roll off, these purchases could help somewhat.”
Victor Kuznetsov, Managing Director and co-founder of Imperial Fund Asset Management, noted that the “spread” between mortgage bonds and comparable Treasury securities tightened about 1 percentage point right after the announcement, but that about two-thirds of that gain quickly disappeared.
Helping American Families
“In the short term, expect mortgage rates to level tighter than 2025 averages, but investment bank researchers tend to agree that most of these MBS purchases have already been priced into rates,” Kuznetsov said. “Inflation, geopolitical events, and the Federal Reserve’s monetary policy will continue to affect mortgage rates in 2026.”
Shannon McGahn, National Association of Realtors Executive Vice President and Chief Advocacy Officer, praised the president’s move/
“President Trump’s plan to purchase $200 billion in mortgage-backed securities (MBS) will help address the high spread between mortgage rates and Treasury yields and help bring costs down for American families,” McGahn said.
“In 2023, the National Association of Realtors joined others in the industry to urge federal leaders to take limited actions to support the MBS market to reduce historically high mortgage costs that have priced too many people out of owning a home,” McGahn said.
“Today’s announcement reflects the kind of market-stabilizing policy we’ve championed. We stand ready to work with the Administration to ensure it delivers real relief for homebuyers and the broader housing market.”
Ensuring Investment Demand for Mortgages
Fannie and Freddie purchase home loans to package into investment vehicles known as mortgage-backed securities, which they usually then sell to investors. That helps to ensure ready investment demand for mortgages, bringing liquidity and stability to the market.
The two companies inevitably hold some MBS on their balance sheets, whether as part of the pipeline before sales, or as a supplement to cash flow by collecting interest payments directly, instead of through guaranty fees paid by lenders, Realtor.com said.
Before 2008, Fannie and Freddie grew their combined holdings to more than $1.5 trillion as a way to pop up earnings, by borrowing heavily at low interest rates and plowing the money into high-yield debt and increasingly risky assets.
That strategy backfired in the subprime mortgage crisis, which blew up their balance sheets with large valuation and credit losses and requiring the federal bailout that landed Fannie and Freddie in conservatorship.
Under the rules of conservatorship, the two GSEs were forced to shrink their retained portfolios and rebuild capital.
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