President Donald Trump announced on Thursday his instruction to unnamed "Representatives" to purchase $200 billion in mortgage bonds. Trump stated that this directive aims to reduce mortgage rates and monthly payments.
Rationale for the Directive
In a post on Truth Social, President Trump cited Fannie Mae and Freddie Mac, the government-sponsored mortgage-issuing entities, as being financially robust with substantial cash reserves. He stated, "Because I chose not to sell Fannie Mae and Freddie Mac in my First Term, a truly great decision, and against the advice of the 'experts,' it is now worth many times that amount — AN ABSOLUTE FORTUNE — and has $200 BILLION DOLLARS IN CASH. Because of this, I am instructing my Representatives to BUY $200 BILLION DOLLARS IN MORTGAGE BONDS."
Trump also claimed the directive would contribute to restoring "affordability" in the housing market. He criticized the previous administration, stating it "ignored the Housing Market" and claimed, "Everything was broken, but I, as President of the United States, have already fixed it! Now, I am giving special attention to the Housing Market."
Uncertainties and Context
It remains unclear who President Trump refers to as his "Representatives" or which entity – Fannie Mae, Freddie Mac, the Treasury Department, or another body – would execute the bond purchases. Requests for clarification from CNBC to the White House and the Federal Housing Finance Agency (FHFA) have not yet received immediate responses.
This announcement follows remarks made by FHFA Director Bill Pulte in a CNBC interview, where he indicated an expectation for President Trump to decide on a potential Initial Public Offering (IPO) of Fannie Mae and Freddie Mac within the next one to two months.
Historical Precedent and Potential Impact
The Federal Reserve has historically purchased mortgage bonds as part of its quantitative easing monetary policy to influence interest rates. However, the executive branch does not have the authority to direct the independent central bank in such transactions. The Treasury Department has also acquired mortgage bonds during periods of economic instability, such as the 2008 and 2009 housing crisis.
The potential impact of this proposed $200 billion purchase on current mortgage rates is also uncertain. Historically, the Federal Reserve's quantitative easing has involved buying various securities, with larger volumes often in Treasuries, to affect long-term Treasury rates. Mortgage rates typically align with long-term Treasury rates rather than directly with mortgage bond yields.
Following President Trump's comments, the 10-year Treasury yield observed a slight decrease in after-hours trading.