Bill Pulte, President Donald Trump’s federal housing finance director, has granted government-backed lenders the authority to nearly double a $200 billion bond purchase that the president ordered to try to lower mortgage rates, according to a report by the Associated Press.
The move could introduce a new level of risk for the companies, the AP report said.
The Associated Press said obtained and email that was sent by the Federal Housing Finance Agency to top officials at Fannie Mae and Freddie Mac and eliminated caps that prohibited the lenders from each holding more than $40 billion in mortgage bonds.
The Jan. 12 email said that “effective immediately” the new amount of mortgage bonds that they could hold in their portfolios was raised to $225 billion apiece, the AP said.
Would be $170B Increase
The news agency said that should the mortgage buyers act on the full extent of this new authority, it would amount to a about $170 billion increase in bond purchases over what the president instructed them to buy.
The AP said that neither Pulte nor the FHFA addressed questions about whether Trump or Treasury Secretary Scott Bessent were consulted before the increase was enacted.
The changes effectively reverse nearly two decades of bipartisan consensus that limits should be imposed after the government had to bail out Fannie Mae and Freddie Mac after the financial crisis of 2008-09. Both were placed into a government conservatorship.
The AP report said that before its story was published, Pulte went on the social media site X and called it “fake news.”
“FHFA simply gave each entity legal flexibility to go beyond their previous caps,” Pulte wrote, adding that despite the lenders’ new bond purchasing authority, they would not “exceed $200 billion.”
The Associated Press said that the White House, the Treasury Department, Fannie Mae and Freddie Mac did not respond to its requests for comment.
The report said that some members of Congress who were closely involved in the fallout from the financial crisis have raised concerns about Pulte and the Republican administration’s new approach.
The legislators say any benefit from the mortgage bond purchase will be fleeting unless the tight supply of homes can be increased, the AP said. Without that, they said, any decrease in interest rates will only drive up home prices as sellers adapt to the lower cost of borrowing by increasing their asking prices.
“This is just a smoke screen for Trump and Bill Pulte to tweet about — it will do little, if anything, to lower mortgage interest rates over the long term and raises questions about increased risks to Fannie and Freddie,” said Sen. Elizabeth Warren of Massachusetts, the top Democrat on the Senate’s banking committee.
GSEs Buy Most Mortgages Lenders Issue
Fannie Mae was created in 1938 as part of the New Deal to shore up the mortgage industry. The New Deal was a series of U.S. federal programs, public work projects, and financial reforms enacted by President Franklin D. Roosevelt between 1933 and 1939 to combat the Great Depression. Congress created Freddie Mac in 1970 to provide additional liquidity to the housing market. The two GSEs buy the majority of mortgages that lenders issue to homeowners, which are then packaged into bonds that are sold to investors.
Both now exist as private companies, but because of their government charters, are subject to additional regulation and can borrow money at far lower costs. Because of this government affiliation, markets also broadly recognize the financial products they sell as federally guaranteed.
But there is a tension between the lenders’ public mission and their desire to generate earnings, which has at times led both to take on heightened levels of risk, as was the case before the financial crisis. That led to both being placed in a government conservatorship.
As a result, the federal government forced Fannie Mae and Freddie Mac to draw down their mortgage investment portfolios, which the Treasury capped at $450 billion. The FHFA went further, the AP reported, lowering the amount of mortgage bonds they could each retain, which was set as low as $25 billion earlier this year, records show.
Now Pulte is overseeing a reversal of that, the AP said. Both lenders are still subject to the Treasury’s $450 billion cap. But with their newly granted limits, they can adjust their portfolios to take on a far more aggressive — and riskier — approach toward buying mortgage bonds.
At first, Pulte took a slow approach. In recent months, the FHFA granted Fannie Mae and Freddie Mac small increases in their mortgage bond buying capacities. That served as a test run for Trump’s announcement this month, according to housing market analysts.
The AP said that now that both lenders are authorized to stake out a larger position, they could use it to boost earnings before an anticipated initial public offering that would allow investors to buy significant stakes in the companies. Neither seems to have enough cash or liquid assets to make a $225 billion purchase, however, which could require taking on debt, analysts say.
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