From Bloomberg: With his directive ordering Fannie Mae and Freddie Mac to buy $200 billion of mortgage bonds, President Donald Trump has opened a new front in the administration’s effort to bolster housing affordability.
Yet by pressing the government-backed housing-finance giants to act as large-scale buyers, the move also signals a broader assertion of executive authority, effectively placing the White House in a role traditionally reserved for the Federal Reserve and intensifying debate over how far presidents can go in steering financial markets.
“This will drive Mortgage Rates DOWN, monthly payments DOWN, and make the cost of owning a home more affordable,” Trump wrote in a Truth Social post announcing the plan.
According to CBS News, President Trump and his team have faced pressure to demonstrate their response to voter discontent regarding housing affordability in anticipation of the November midterm elections. Last month, Trump announced his intention to unveil comprehensive housing reforms, and this week, he also discussed the potential to restrict institutional investors from purchasing single-family homes, as reported by the Associated Press.
Essentially, the proposed plan relies on a fundamental relationship within the bond market. When a substantial buyer enters the market to purchase mortgage-backed securities (MBS) on a large scale, prices for these bonds tend to increase, while yields decrease. Consequently, borrowers may benefit from lower mortgage rates, as explained by Brookings.
This is similar to what the Federal Reserve did during the financial crisis in 2008 and again during the COVID-19 pandemic. Back then, the Fed bought a lot of Treasury bonds and mortgage-backed securities to help people borrow money when interest rates couldn’t go any lower.
Trump posted about the mortgage rate on his social media platform Truth Social.
Mortgage News Daily reported:
On a week where the mortgage market was most likely to experience volatility due to Friday’s jobs report, Thursday afternoon’s surprise announcement of $200bln in GSE MBS (mortgage-backed securities) buying stole the show. This was already juicing the underlying MBS market yesterday afternoon, but traders took the surge to the next level this morning.
This matters because MBS dictate mortgage rates. When MBS are rising/improving/surging/etc., it implies lower rates.
MBS had improved so much this morning that the average lender released their best rate sheet since Feb 2, 2023–the lowest level since September 2022.
Read more at Bloomberg
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