Mortgage bonds return to spotlight as White House targets housing relief

U.S. Treasury Secretary Scott Bessent said the Trump administration’s plan to resume purchases of mortgage-backed securities (MBS) is intended to broadly offset the pace at which these bonds are running off the Federal Reserve’s balance sheet, Reuters reported.

According to Reuters' report, the Federal Reserve has been steadily reducing its holdings of mortgage-backed securities as part of its balance sheet runoff, with about $15 billion of MBS maturing each month from its overall $6.3 trillion bond portfolio. The administration’s objective is to counter that dynamic by matching the scale of the Fed’s monthly reduction, helping stabilise conditions in the mortgage market.

On Thursday, President Donald Trump directed the Federal Housing Finance Agency (FHFA), which oversees mortgage finance giants Fannie Mae and Freddie Mac, to buy up to $200 billion of bonds issued by the two firms as part of an effort to ease affordability pressures in the U.S. housing market. FHFA Director William Pulte said on Friday that the programme had begun with an initial $3 billion round of purchases.


Currently, the Fed holds just over $2 trillion in mortgage-backed securities—a remnant of stimulus programs launched during the global financial crisis and later expanded during the pandemic. These holdings have been steadily declining for more than two years at a monthly pace of about $15 billion to $17 billion, a drawdown that some analysts say has constrained the scope for mortgage rates to ease over the past year.

As per the report, Mortgage rates have retreated from their peaks, with the average 30-year fixed-rate loan now around 6.2%, down from nearly 8% in 2024. However, borrowing costs remain well above the sub-3% levels seen during the pandemic, and when combined with elevated home prices, have worsened affordability challenges that have weighed on the president’s approval ratings.

Bessent said the purchases, which are being funded through the balance sheets of Fannie Mae and Freddie Mac rather than the government, are unlikely to directly push mortgage rates lower. Instead, they could have an indirect effect by narrowing the yield spread between securities issued by the two firms and U.S. Treasuries.

Fannie Mae and Freddie Mac play a central role in the housing market by buying mortgages from banks and other lenders, packaging them into securities and selling them to investors. By purchasing their own bonds, the firms can help free up balance sheet capacity for lenders to originate new loans.

The administration has also reiterated its interest in reprivatising Fannie Mae and Freddie Mac, which were placed under government control during the 2008 financial crisis. Bessent said the bond purchases would not weaken the firms’ financial position, noting that they have ample cash reserves and that the move could support their earnings.