In early January 2026 Fannie Mae and Freddie Mac purchased up to $200 billion in mortgage-backed securities (MBS). The administration’s stated goal for this intervention is to increase demand for these bonds, thereby narrowing the “spread” between Treasury yields and mortgage rates to make homeownership more affordable. An influx of cash into the bond market from Fannie Mae and Freddie Mac is expected to lower mortgage rates.
After the announcement, mortgage rates fell to 5.99%. By mid-February, the average 30-year fixed rate settled at 5.87%, (Alterna Mortgage is at 5.625%) and the 15-year rate dropped to 5.25% (Alterna Mortgage is at 5.0%).
While previous Federal Reserve action can provide insight into how a $200 billion purchase of MBS by Fannie Mae and Freddie Mac could reduce rates, it’s not an apples-to-apples comparison.
The Federal Reserve illustrates this process well. Between 2008 and 2022, it consistently bought large amounts of mortgage-backed securities (MBS). During these years, mortgage rates dropped, hitting a record low in 2021. By mid-2022, the Fed had accumulated $2.7 trillion in MBS and stopped purchasing them. After that, mortgage rates began to rise.
The $200 billion worth of MBS purchased by Fannie Mae and Freddie Mac this year is significantly less than the $2.7 trillion acquired by the Federal Reserve. This appears to be a one-off injection, which is not comparable. Fannie Mae and Freddie Mac simply do not possess the same buying power or budget as the Federal Reserve.
I don’t think the reduction will be permanent. To consistently stay in the 5% range, we need over $200 billion in purchases, and to reach the 4% range, more consistent MBS purchases are also necessary. While you can take advantage of these announcements, recent history shows that when real demand is replaced by artificial demand, it benefits the short term but creates long-term challenges.
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