How Trump’s new approach to bond purchases might impact mortgage rates and housing affordability

Trump Proposes $200 Billion Mortgage Bond Purchase to Lower Rates

Former President Donald Trump has announced a plan for Fannie Mae and Freddie Mac to acquire $200 billion in mortgage-backed securities. The goal is to help bring mortgage rates below 6% and make homeownership more attainable for Americans.

“I have directed my team to purchase $200 billion in mortgage bonds. This action is intended to reduce mortgage rates, lower monthly payments, and make buying a home more affordable,” Trump shared on Truth Social this Thursday.

This initiative aims to impact the gap between the 10-year Treasury yield and 30-year mortgage rates, known as the mortgage spread. Traditionally, mortgage rates are about 1.8 percentage points higher than Treasury yields, but in recent years, this spread has been even wider, keeping rates elevated.

Several factors influence mortgage spreads, such as borrowers’ credit profiles, economic conditions, market fluctuations, and the appetite for mortgage-backed securities. By increasing the purchase of these securities, Trump’s plan seeks to directly affect market demand.

Many real estate analysts believe that additional purchases of mortgage bonds could help bring rates down. However, the magnitude of any decrease is uncertain, and focusing solely on boosting demand without addressing the nation’s limited housing supply may not fully resolve affordability challenges.

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Leslie Falconio, head of taxable fixed income strategy at UBS Global Wealth Management, commented, “This is a meaningful initial move, but it won’t solve everything. Addressing demand is helpful, but tackling the supply shortage is essential to truly improve affordability.”

The United States faces a housing shortfall estimated between 1.5 million and 5.5 million homes. JPMorgan recently estimated the deficit at 2.8 million homes, a gap that could take ten years to close.

Focus on Demand

Fannie Mae and Freddie Mac currently hold a relatively small portion of the mortgage-backed securities market, with a combined $247 billion as of November. In contrast, banks, foreign investors, and the Federal Reserve are much larger players in the $9 trillion market.

Trump’s proposal builds on recent actions by the mortgage agencies, which have added over $50 billion in mortgage bonds to their portfolios since late 2024, helping to narrow spreads and bring rates down.

Over the past year, mortgage rates have dropped from the upper 6% range to just below 6.2%. Spreads have also tightened, falling from a peak of 2.65 percentage points in April to just under 2 percentage points now.

Market Response and Potential Impact

Rick Palacios Jr., research director at John Burns Research and Consulting, noted, “This is making a real difference for homebuyers right now.”

Following Trump’s announcement, mortgage rates and spreads shifted significantly. According to Mortgage News Daily, the average 30-year mortgage rate fell by 22 basis points to 5.99%, down from 6.21% the previous day.

Walt Schmidt, senior vice president of mortgage rate strategies at FHN Financial, suggested that the new policy could push mortgage-bond spreads closer to the historic lows seen in 2012, when the Federal Reserve’s large-scale purchases helped support the housing market after the financial crisis. At that time, mortgage bonds yielded just 0.55 percentage points above Treasuries, compared to about 1.1 percentage points recently.

Schmidt added, “If spreads tighten by another 50-70 basis points, primary mortgage rates could settle in the mid-5% range, which would likely spur more refinancing and home purchases.”

However, if rates fall significantly while the housing supply remains tight, increased demand could drive prices higher. Christopher Maloney, a mortgage strategist at BOK Financial, warned, “If these purchases substantially lower rates, buyers may be able to borrow more, which could push home prices up even further.”

Joel Berner, senior economist at Realtor.com, also cautioned that the imbalance between supply and demand could worsen affordability. He noted that a one-time $200 billion purchase may have a more limited effect compared to the Federal Reserve’s previous, larger, and sustained interventions.

“When the Fed has lowered rates through similar actions in the past, it was because the market saw those moves as large, ongoing, and reliable,” Berner explained. “Without that scale and predictability, any impact on mortgage rates is likely to be smaller and short-lived.”

Claire Boston is a Senior Reporter for Yahoo Finance covering housing, mortgages, and home insurance.

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