Fannie, Freddie Place Large Bids for Mortgage-Backed Securities

Fannie Mae and Freddie Mac have begun placing sizable orders to purchase mortgage-backed securities, stepping into a market roiled by widening bond spreads amid a surge in volatility. Government-controlled entities are capitalizing on a sharp selloff while expanding their already significant portfolios.

Their efforts follow a directive two months ago from President Donald Trump instructing the pair to acquire $200 billion of MBS as part of a push to bolster housing affordability. This initiative is part of a broader strategy to improve access to home financing and keep mortgage rates stable.

The increased buying could help cushion a recent spike in spreads that has lifted mortgage rates to a three-month high. However, it may only partially offset broader market pressures stemming from the US-Iran conflict.

Why the Move Happened

Fannie Mae and Freddie Mac, which purchase and package home loans into securities and financially guarantee them to buyers, rank among the largest holders of US mortgage debt. They hold these bonds and loans in their so-called retained portfolios.

The pair, under federal conservatorship since 2008, once held a combined $1.5 trillion worth, but by late 2022 that figure had dropped to just $158 billion. Since the middle of last year, the portfolios have been on the rise again, climbing to $278 billion as of January.

President Trump's directive for Fannie and Freddie to ramp up bond and loan purchases sparked an almost immediate move in the roughly $9 trillion MBS market. Relative yields to Treasuries on recently issued securities narrowed about 0.2 percentage point.

How Markets Responded

In the weeks following the directive, however, the pair bought at only a modest pace. That likely reflected already compressed risk premiums on many mortgage bonds, which left limited profit potential and reduced scope to meaningfully influence mortgage rates.

Mortgage-bond spreads have widened sharply since then. A pickup in interest-rate volatility, driven in part by swings in oil prices amid the escalating conflict in the Middle East, has ripples through fixed-income markets.

What Analysts Are Watching

The market is watching to see if Fannie and Freddie can continue their aggressive purchases without negatively impacting mortgage rates. Analysts are also monitoring the potential for further directives from the administration, which could influence the housing market more broadly.

The increased buying could help stabilize mortgage rates, but it may not be enough to counter broader market pressures. Investors and analysts are closely watching for signs of further intervention or policy changes that could affect the MBS market.