President Donald Trump revealed on social media on Thursday that he is instructing the federal government to acquire $200 billion in mortgage bonds. The move aims to lower mortgage interest rates at a time when many Americans are concerned about rising home prices and housing affordability.
In the lead-up to the November midterm elections, the White House has been emphasizing efforts to respond to voter worries over housing costs. Over recent years, home prices have increased at a pace exceeding income growth, largely due to sustained shortfalls in construction. This imbalance has created barriers for renters trying to purchase their first home and has complicated efforts for current homeowners to upgrade their residences. Housing affordability challenges have persisted since the aftermath of the 2008 financial crisis and throughout Trump’s first term.
The president stated that the mortgage giants Fannie Mae and Freddie Mac, both operating under government conservatorship since 2008, have accumulated $200 billion in cash reserves. These funds are planned to be deployed for the purchase of the mortgage bonds.
“This will drive Mortgage Rates DOWN, monthly payments DOWN, and make the cost of owning a home more affordable,” Trump wrote in his social media post.
However, White House spokespeople have not provided details regarding the timeline for these purchases or the specific mechanics involved.
Historically, the Federal Reserve has intervened in mortgage markets by buying mortgage-backed securities during periods of economic distress. Those interventions helped push interest rates down significantly, enabling many homeowners to refinance their mortgages to rates below 3%. This prolonged period of low rates has contributed to reduced housing turnover, as owners remain reluctant to sell and obtain higher-interest mortgages, thereby tightening market inventory.
Daryl Fairweather, chief economist at real estate brokerage Redfin, offered caution regarding the effectiveness of this strategy. She stated, “At a high level I feel this is putting a Band-Aid on a deeper issue and it probably wouldn’t lower rates enough to really undo the mortgage rate lock-in effect.”
Fairweather approximated that government purchases of mortgage debt might reduce the 30-year fixed mortgage rate by roughly 0.25 to 0.5 percentage points. Nonetheless, she emphasized that this approach does not address systemic problems, particularly the persistent shortage of available homes for sale, which continues to drive housing prices upward and limit affordability.
Currently, average mortgage rates for 30-year fixed loans sit near 6.2%, according to Freddie Mac. This rate level has remained above 6% since September 2022. Following inflationary pressures and economic recovery after the global pandemic, rates rose from near-record lows but have shown some decline from nearly 7% at the onset of Trump’s second term last year.
Fairweather further explained that even a reduction of about a quarter to half a percentage point on mortgage rates may encourage some marginal additional homebuying demand. Still, she warned this is unlikely to resolve the existing market constraints caused by supply limitations.
An additional consideration is the risk to the financial health of Fannie Mae and Freddie Mac, as their cash reserves serve as a buffer against downturns reminiscent of the Great Recession housing crisis. Utilizing the $200 billion reserves reduces these cushions, potentially increasing the companies’ vulnerability if adverse events impact the housing market.
Separately, the Federal Reserve currently holds approximately $2 trillion in mortgage-backed securities. This amount has declined from a peak near $2.7 trillion in mid-2022 as the central bank began reducing its holdings following the economic stabilization after the pandemic.
After a spike in inflation that culminated with the Consumer Price Index reaching a four-decade high in 2022, mortgage interest rates increased. This rise has placed additional pressure on American households already coping with elevated costs in housing, food, and energy sectors. Lower borrowing costs can reduce monthly mortgage payments, potentially improving affordability temporarily until housing prices ultimately adjust to new rate levels.
Outstanding mortgage debt in the United States totaled about $21.1 trillion as of mid-2023, according to data from the St. Louis Federal Reserve. Many homeowners took advantage of previously low interest rates during the pandemic to refinance at rates below 3%, contributing to the current low turnover in the housing market.
In recent remarks, President Trump also indicated plans to introduce housing reforms aimed at further improving market conditions. He expressed intent to restrict institutional investors from purchasing residential properties, a factor some analysts believe has contributed to housing shortages.