Trump Orders Mortgage Bond Purchases To Lower Rates

Daniel Carter

Summary:

Shares in mortgage lenders jumped Friday after President Donald Trump instructed "representatives" to purchase mortgage bonds in an attempt to lower rates for homebuyers.

Trump said in a social media post on Thursday that he was asking unnamed buyers — it wasn't clear if that meant the Treasury, Fannie Mae, Freddie Mac or another agency — to buy $200 billion of mortgage bonds. This should bring down both rates and monthly payments, making home ownership more affordable, Trump said.

Federal Housing Finance Agency Director Bill Pulte later posted that "we are on it." Trump said he was making the push because Fannie and Freddie — the government-sponsored entities that buy mortgages from banks, credit unions and other original lenders — are sitting on a pile of cash.

Mortgage lender Rocket Companies jumped more than 6% to a fresh 52-week high. UWM Holdings gained more than 8%, on track for one of its best sessions in the past year. Lender PennyMac rose about 5%.

Artificial intelligence-focused lender Better Home & Finance added more than 2%. Opendoor Technologies, a real estate ecommerce platform that has become a meme stock, surged more than 16%.

White House pressure

Wall Street has long expected the Trump administration to take some sort of action to put downward pressure on mortgage rates. But analysts are now wondering what the actual impact will be for consumers and what it means for lending stocks.

"We read this as the President ordering FHFA Director Bill Pulte to force Fannie Mae and Freddie Mac to buy $200 billion of their own MBS to bring down interest rates," TD Cowen's Jaret Seiberg wrote to clients, referring to mortgage-backed securities. "This is not a surprise."

TD Cowen expects the 10-year U.S. Treasury yield to finish 2026 at 3.5%, down from about 4.17% on Friday. That would put downward pressure on 30-year fixed mortgages rates, possibly lowering them to roughly 5.25% from the current 6.2%.

If the $200 billion in purchases happened quickly, TD Cowen said mortgage rates could finish the year closer to 5%.

Smaller than expected

But Wolfe Research analyst Tobin Marcus said a $200 billion purchase program is smaller than the firm previously anticipated. The impact on the housing market is likely "positive but fairly modest," he said.

Bank of America analyst Rafe Jadrosich said lower mortgage rates would bring some relief to house buyers grappling with high rates. For each quarter-point decline in mortgage rates, he estimated a monthly payment on a 30-year fixed loan of $400,000 would drop by as much as $70.

At Morgan Stanley, analyst Jeffrey Adelson now sees UWM and Rocket performing closer to his bull case if mortgage rates move lower. Barclays analyst Terry Ma said PennyMac and UWM offer the best risk and reward for investors in the sector, highlighting Rocket's relatively high multiple as an impediment.

"The volume levered names are the clear beneficiaries from an earnings perspective to the extent that these initiatives stimulate refinance and purchase origination activity in a meaningful way," Ma wrote to clients.

IPO impact

Analysts are also questioning if Trump's plan disrupts a potential initial public offering for Freddie Mac and Fannie May. Pulte told CNBC on Thursday that Trump could make a decision about IPOs — both government-sponsored enterprises (GSEs) are in conservatorship and controlled by the federal government — in the next month or two.

"We have always thought that the path toward a transaction would be slower and messier than some investors seemed to be assuming in the post-election euphoria last year," Wolfe's Marcus said.

Mortgage bond purchases are "the biggest and most obvious demand-side tool in the [White House's] housing toolkit," Marcus added. "With the initial market response not being overwhelming, it still looks to us like the White House doesn't have a silver bullet for housing or for the 'affordability' problem more generally."

Source: CNBC

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