Trump Orders $200B Bond Buy to Lower Mortgage Rates

President Donald Trump has directed government-sponsored enterprises Fannie Mae and Freddie Mac to purchase $200 billion in mortgage bonds in a bid to drive down housing costs before the November midterm elections.

The announcement, made Thursday via social media, is framed as a direct intervention to make homeownership more accessible. "This will drive Mortgage Rates DOWN, monthly payments DOWN, and make the cost of owning a home more affordable," Trump stated.

The president credited his first-term decision not to privatize Fannie Mae and Freddie Mac, which he said allowed them to accumulate "$200 BILLION DOLLARS IN CASH." He positioned the move as a corrective measure, claiming it is "one of my many steps in restoring Affordability, something that the Biden Administration absolutely destroyed."

Following the news, mortgage-backed securities rallied against Treasuries, and stocks of mortgage-linked companies like Rocket Cos Inc. and LoanDepot, Inc. saw gains.

How the $200 Billion Purchase Aims to Work

Fannie Mae and Freddie Mac, which were bailed out by the U.S. government during the 2008 financial crisis, have already been expanding their bond holdings. In the five months leading up to October, the housing-finance giants grew their retained portfolios—the bonds and loans they hold directly—by over 25%.

While the planned $200 billion in purchases represents just over 2% of the roughly $9 trillion agency mortgage bond market, the scale of the new demand is expected to put downward pressure on spreads. This, in turn, could translate directly into lower interest rates for American homebuyers.

Demand for these bonds has been increasing for months, pushing spreads to their tightest levels since 2022. Some market watchers anticipate that banks will also increase their purchases of mortgage-backed securities, partly due to rising deposits giving them more capital to deploy.

Market Reacts as Analysts Debate Impact

Experts are divided on how significant the effect will be.

David Dworkin, president and CEO of the National Housing Conference, believes the impact will be tangible. "If the Trump administration allows Fannie and Freddie to grow their retained portfolios, there's no question it will have downward pressure on mortgage rates – probably at least a quarter of a point, maybe more," he said.

This view is supported by a Citigroup estimate from late last year, which projected that a $250 billion portfolio increase by the two GSEs could shrink risk premiums by about 0.25 percentage points, potentially leading to a similar reduction in consumer mortgage rates. The average 30-year mortgage rate was 6.16% in the week ending January 8, near its lowest point since October 2024, according to Freddie Mac.

However, some analysts remain skeptical. Neil Dutta, head of economics at Renaissance Macro Research, pointed out that mortgage spreads have already seen significant tightening. "So, I am not sure what this action will really do. Much of the juice appears to have been squeezed," Dutta commented.

A Political Play Ahead of Midterm Elections

Federal Housing Finance Agency Director Bill Pulte confirmed the administration's intent to act swiftly. "We have the capability, we have the cash to do it, and we are going to go about executing it very smartly and in a very big way," he said Thursday.

Pulte described the bond-buying program as a "one-two punch" alongside a plan Trump announced Wednesday to prohibit institutional investors from purchasing single-family homes. The president is expected to detail these proposals further at the World Economic Forum in Davos, Switzerland.

These initiatives are being rolled out as the president's advisers reportedly express concern that the rising cost of living has become a major political liability for the GOP, potentially threatening the party's control of Congress in the fall elections.

What This Means for Fannie and Freddie's Future

The new directive may also signal a shift in the administration's long-term plans for Fannie Mae and Freddie Mac. Pulte mentioned in a CNBC interview that Trump would decide within a month or two whether to proceed with an initial public offering (IPO) for the enterprises.

According to Jaret Seiberg, managing director at TD Cowen, the move to use the GSEs as a policy tool for housing affordability suggests that privatization is no longer a priority.

"We view the President's comment as negative for ending the GSE conservatorships," Seiberg wrote in a research note. "Trump praised his decision not to IPO the companies in this first term. And he suggested he could use these companies to aid housing affordability. This does not sound like a President who is in a rush to IPO the enterprises."