President Donald Trump said Thursday that he is directing the federal government to buy $200 billion in mortgage bonds, arguing the move would lower mortgage rates and monthly housing payments.
Trump made the announcement on social media, saying the purchases would “drive Mortgage Rates DOWN, monthly payments DOWN, and make the cost of owning a home more affordable.” He also said the two mortgage companies under government conservatorship, Fannie Mae and Freddie Mac, have $200 billion in cash that would be used for the buying.
White House officials did not immediately respond to questions about the timelines for how the purchases would occur, the Associated Press reported.
The proposal comes as Trump and the White House try to respond to voter concerns about home affordability ahead of the November midterm elections. The AP said home prices have generally risen faster than incomes because of a persistent construction shortfall, making it harder for renters to buy a first home and for current owners to upgrade.
The report said the affordability challenge has been tied to conditions dating back to Trump’s first term and the housing-market collapse and recovery that followed the 2008 global financial crisis.
The AP noted that the Federal Reserve has previously bought mortgage bonds during times of economic turmoil to help reduce interest rates. The low rates of the recent past have encouraged many homeowners who refinanced into rates of 3% or less to stay in their homes, limiting inventory for the market, the report said.
Daryl Fairweather, chief economist at real estate brokerage Redfin, said the government purchases were unlikely to move rates enough to overcome what she described as mortgage rate lock-in. “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 said, according to the AP.
Fairweather estimated the purchases of mortgage debt could shave 0.25 to 0.5 percentage points off the rate for a 30-year fixed-rate mortgage, but she cautioned that the plan would not address other drivers of affordability problems, including a chronic shortage of homes on the market.
The AP reported mortgage rates have been averaging around 6.2%, citing Freddie Mac’s data, and said 30-year mortgage rates have not been below 6% since September 2022.
The AP also raised a potential downside to Trump’s approach: by spending cash reserves that are supposed to serve as a buffer against downturns, it could leave Fannie Mae and Freddie Mac more vulnerable if housing conditions deteriorate, similar to what happened during the Great Recession.
Separate from Trump’s proposal, the report said the Federal Reserve holds roughly $2 trillion worth of mortgage-backed securities on its balance sheet, down from $2.7 trillion in June 2022, and that the Fed began unwinding its mortgage-debt holdings as the U.S. economy recovered from the global pandemic.
Mortgage rates climbed as inflation spiked after the pandemic, with the consumer price index reaching a four-decade high in 2022, the AP said. The report noted that while the average mortgage rate is down from nearly 7% at the start of Trump’s second term last year, the decline has done little to ease pressure on consumers facing housing, food and energy costs.
The AP further said that when interest rates fall, servicing housing debt can become cheaper month to month until home prices adjust in response to the rate changes. It cited “roughly $21.1 trillion” in outstanding mortgage debt as of the middle of last year, and said many homeowners refinanced during the pandemic into rates of 3% or lower.
Trump last month said he planned to unveil housing reforms, and on Wednesday he said he wants to block institutional investors from buying houses, the AP reported.