From May to October 2025, Fannie Mae and Freddie Mac escalated their holdings in mortgage-backed securities (MBS) by nearly one-third, marking the highest level in almost four years. This development reignites conversations regarding the fate of these government-sponsored entities (GSEs) under the Trump administration.
Fannie Mae and Freddie Mac serve a pivotal role in the U.S. mortgage market by purchasing residential loans from lenders and either retaining them or converting them into MBS for investors. By expanding their mortgage portfolios, they reduce the supply of MBS available in the market, thus increasing the value of remaining securities and compressing yields, which could lead to lower interest rates for borrowers. This tactic represents a straightforward way for the government to influence mortgage rates without directly intervening in monetary policy.
The timing of this expansion is significant, as President Donald Trump has criticized the Federal Reserve for not reducing interest rates sufficiently and has prioritized housing affordability, proposing measures like 50-year mortgages. The average 30-year fixed mortgage rate stood at 6.22% in mid-December.
Additionally, this strategy may aim to enhance the financial standing of the GSEs in anticipation of a potential public offering. While some analysts express skepticism about the readiness of these entities, given their continued government conservatorship since the 2008 financial crisis, expectations remain that they could potentially add up to $100 billion more to their portfolios in 2026, impacting roughly $1.5 trillion in mortgage loans issued in recent years. Observers are advised to monitor the 10-year Treasury yield, which has remained above 4% despite recent Federal Reserve rate cuts, as Fannie and Freddie’s portfolio growth may contribute to downward trends in mortgage rates.
Why this story matters:
- The expansion of GSE portfolios could significantly impact mortgage rates and housing affordability.
Key takeaway:
- Increased MBS holdings by Fannie Mae and Freddie Mac aim to stabilize and potentially lower mortgage rates.
Opposing viewpoint:
- Some analysts question whether the GSEs are adequately prepared for future challenges, particularly considering their prolonged conservatorship.
