Mortgage Market Gets Boost as Trump Pushes for Increased Bond Purchases

The proposed plan by the Trump administration aims to encourage Fannie Mae and Freddie Mac, the two government-sponsored enterprises that dominate the US mortgage market, to purchase more mortgage-backed securities (MBS). This move is intended to inject liquidity into the bond market and potentially stabilize mortgage rates. Under the current system, Fannie Mae and Freddie Mac are required to hold a certain percentage of MBS in their portfolios. The plan would increase this threshold, encouraging the two enterprises to buy more bonds. As a result, the amount of new mortgage debt created through these securities could decrease, which might put downward pressure on mortgage rates. However, some experts argue that this approach may not have a significant impact on mortgage rates. They point out that the Federal Reserve and other central banks are actively purchasing MBS to inject liquidity into the market, which has already led to a decrease in mortgage rates. The proposed plan would be an attempt to replicate this effect through Fannie Mae and Freddie Mac’s buying activities. Additionally, there are concerns about the potential risks associated with increasing the amount of debt secured by these securities. Some experts warn that if too much MBS is purchased by Fannie Mae and Freddie Mac, it could lead to a surge in mortgage issuance, which might strain the financial system. Overall, while the proposed plan may have some positive effects on the mortgage market, its impact on mortgage rates remains uncertain.