How Trump’s latest bond-buying plan could influence mortgage rates and affordability

Core Viewpoint - President Trump's directive for Fannie Mae and Freddie Mac to purchase $200 billion in mortgage bonds aims to lower mortgage rates below 6% and enhance housing affordability [1] Group 1: Mortgage Rate Influence - The directive is intended to impact mortgage spreads, which are the differences between the 10-year Treasury yield and 30-year mortgage rates, historically averaging 1.8 percentage points higher than Treasury yields [2] - By increasing the purchase of mortgage bonds, the initiative seeks to influence the demand for mortgage-backed securities, which is one of the factors determining spread levels [3] Group 2: Expert Opinions and Housing Supply - Housing experts agree that additional mortgage-bond purchases could lower mortgage rates, but the effectiveness of this plan is uncertain without addressing the significant housing supply shortage in the U.S., estimated between 1.5 million and 5.5 million homes [4][6] - The current housing supply shortage is pegged at 2.8 million homes, which could take a decade to resolve, indicating that demand-side measures alone may not suffice to improve affordability [6] Group 3: Current Market Context - Fannie Mae and Freddie Mac hold a relatively small portion of mortgage-backed securities, with a combined total of $247 billion, while larger players include banks, foreign investors, and the Federal Reserve in the $9 trillion market [7] - The recent actions of Fannie Mae and Freddie Mac have already contributed to a decrease in mortgage rates, which fell from the high 6% range to just under 6.2% over the past year, with spreads also compressing from 2.65 percentage points in April to just under 2 percentage points currently [8][9]