Trump's $200B Bond Plan to Counter Fed on Housing
Frederick MilesThe Trump administration directed Fannie and Freddie to buy $200B in MBS, directly countering the Fed to ease housing affordability.
The Trump administration has directed mortgage finance giants Fannie Mae and Freddie Mac to purchase $200 billion in mortgage-backed securities (MBS). The move is a significant intervention aimed at tackling the persistent housing affordability crisis in the United States.
According to FHFA Director William Pulte, the Federal Housing Finance Agency—which oversees the two companies—has already initiated the program with a $3 billion round of purchases.
A Direct Counter to Federal Reserve Policy
U.S. Treasury Secretary Scott Bessent clarified that the policy is designed to directly offset the Federal Reserve's ongoing reduction of its own bond holdings. The Fed has been allowing its massive $6.3 trillion bond portfolio to shrink, with MBS holdings declining by approximately $15 billion each month.
"What is happening is the Fed has about $15 billion of roll-off every month," Bessent explained in an interview with Reuters. "So I think the idea is to roughly match the Fed, which has been pushing the other way."
U.S. Treasury Secretary Scott Bessent explained that the new policy aims to offset the Federal Reserve's balance sheet actions.
For over two years, the central bank has been steadily reducing its more than $2 trillion stash of MBS at a rate of $15 billion to $17 billion per month. Some analysts believe this process, a legacy of stimulus efforts during the global financial crisis and the pandemic, has prevented mortgage rates from falling more significantly.
Targeting Housing Affordability
The combination of high borrowing costs and elevated home prices has created a severe affordability problem, a key issue weighing on President Trump's approval ratings.
While the average rate on a 30-year fixed-rate mortgage has dropped to around 6.2% from a peak of nearly 8% in 2024, it remains far above the 3% levels seen during the pandemic.
Bessent noted that the new MBS purchases are not expected to lower mortgage rates directly. Instead, the goal is to achieve this indirectly by narrowing the yield spread between the securities issued by Fannie and Freddie and benchmark U.S. Treasuries.
The Role of Fannie Mae and Freddie Mac
Fannie Mae and Freddie Mac are central to the U.S. housing market. They buy home loans from banks and other lenders, package them into bonds, and sell them to investors. This process frees up capital for lenders to make new loans.
The new bond purchases will be funded from the two firms' own balance sheets. Amid ongoing discussions about reprivatizing the government-controlled entities, Bessent asserted that the move would not undermine their financial stability. He stated that both companies have sufficient cash and that the purchases could potentially increase their earnings.
