WASHINGTON (TNND) — President Donald Trump is taking another swing at breaking through the country’s struggles with housing affordability by calling on Fannie Mae and Freddie Mac to buy $200 billion in mortgage bonds in the administration’s push to lower housing costs.
The White House has been trying to take steps to lower costs amid pressure from voters who are increasingly frustrated over the cost of living and turning the blame on Trump and Republicans in control of Congress. Housing prices have climbed faster than incomes and well above the rate of inflation since the pandemic, creating a challenging financial dynamic for Americans that are getting priced out of homeownership.
“It is one of my many steps in restoring Affordability, something that the Biden Administration absolutely destroyed,” Trump posted on social media. “We are bringing back the AMERICAN DREAM that was destroyed by the last Administration.”
The president said the agencies have $200 billion in cash to make the purchases. Financial Housing Finance Authority director Bill Pulte, who also oversees Fannie and Freddie, said the companies “will be executing” the president’s request.
“This will drive Mortgage Rates DOWN, monthly payments DOWN, and make the cost of owning a home more affordable.”
Mortgage-backed securities are groups of home loans that Fannie and Freddie, along with private financial institutions, buy and package into bonds that are bought and sold by investors. When banks and other lenders sell home loans to Fannie and Freddie, they free up cash for more lending.
Fannie and Freddie regularly purchased mortgage-backed securities before the 2008 financial crisis, part of the investment strategy that ran them into financial troubles that required government takeover when homeowners defaulted on their loans.
While there are few details on how the bond purchases will work or when they will happen, analysts said they would put some downward pressure on mortgage rates. But it will also expose them to risk by having less cash reserves as buffer against a recession or problems in the housing market.
Redfin chief economist Daryl Fairweather said the purchases could lower rates by 10 to 15 basis points, or the difference of 6.15% to 6%.
“Aside from the slight nudging of rates and an immediate rally in the Mortgage-Backed Securities market, we don’t expect this to facilitate many more sales,” Fairweather said.
Home prices are up more than 50% nationally compared to the pre-pandemic housing market. The median existing home price has climbed for 29 straight months to $409,200, according to the National Association of Realtors. Mortgage rates are hovering near 6%, double the 3% rate buyers were able to get during the pandemic.
Other costs of homeownership have also spiked since the pandemic with higher property taxes with ballooning valuations and higher insurance premiums from inflation and greater risk due to natural disasters that are increasing costs for homeowners across the country.
“The policy’s impact on affordability will be limited. The $200 billion is a relatively small sum by historical standards. Furthermore, the root cause of the affordability crisis is the housing supply shortage, which this bond-buying program does not address,” Fairweather said.
Industry analysts broadly agree the best way to improve the affordability outlook is to increase the housing supply. The U.S. is short some 3-4 million homes to meet demand after building nosedived in the aftermath of the financial crisis and has not yet recovered enough.
Pulte has recently pressured some the country’s biggest builders to increase production and said in a post on X on Thursday there is “more to come” on plans from FHA to incentivize more building.
The plan to push rates down through more bond purchases by Fannie and Freddie could help notch incremental gains in affordability through lower mortgage payments, but it may come with side effects. Some analysts believe rates getting beneath 6% would be a psychological breaking point that would get more people back into the market, but that scenario would lead to increased competition for a limited supply of properties and put upward pressure on prices.
Rates are also unlikely to drop to levels to completely break through the “lock-in effect” that has weighed on the slumping housing market. Most primary mortgages in the U.S. have a rate at or below 4% and 80% are under 6%, making homeowners unwilling to give up their rates to move to a new property.
Trump said last month he is planning to unveil sweeping housing reforms aimed at tackling the high costs that have plagued the market and priced many Americans out of homeownership. He has already said he wants to block institutional investors from buying single-family homes to free up more properties for families to buy, though there are questions on how impactful would be because institutional ownership makes up just a sliver of single-family homeownership.
He has also floated creating a 50-year mortgage to shrink monthly payments, but the proposal has not gained much ground because it would come with downsides of paying significantly more interest over the life of a loan and slow the rate owners build equity.
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