When Housing Policy Becomes Monetary Policy
Last week, President Trump instructed his “representatives” to purchase roughly $200 billion in agency mortgage-backed securities (MBS). It appears to be an attempt to lower mortgage rates without relying on a Federal Reserve that is not easing (lowering interest rates) as aggressively as the administration would like.
Sidestepping the Fed, the plan relies on Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs) still operating under federal conservatorship, to do the heavy lifting. Basically, the administration is asking Fannie and Freddie to engage in the kind of large-scale asset purchases (LSAPs) the Fed used in the wake of the 2008 financial crisis and the COVID-19 pandemic.
LSAPs are controversial even when conducted by the central bank charged with managing monetary policy. Having the GSEs carry out a similar strategy represents a significant expansion of their role and a dangerous institutional precedent. Fannie and Freddie were never designed to function as alternative monetary authorities.
During 2020–2021, the Federal Reserve purchased roughly $1.3 trillion in MBS, with one estimate finding that those purchases reduced mortgage rates by about 40 basis points relative to what they otherwise would have been. If one assumes a proportional relationship and applies the same effects to the proposed GSE program, this $200 billion purchase would imply roughly a 6 basis-point reduction in mortgage rates, all else equal.
While this reduction would be rather small, it’s likely that this estimate is also a bit optimistic. It assumes the original estimate is correct, that the relationship between purchases and rates is linear, and that purchases by Fannie and Freddie would have the same effect as purchases by the Federal Reserve. Even under those generous assumptions, the expected effect is modest (6 basis points is equivalent to 0.06 percent).
Even so, to the extent MBS purchases succeed in lowering mortgage rates relative to what they otherwise would be, they increase housing demand and therefore increase home prices, all else equal. Put differently, lower borrowing costs stimulate demand for leveraged assets, such as housing, thereby raising their prices. So, while mortgage rates could go down a bit, we would also expect house prices to rise.
As of November 2025, Fannie and Freddie each have approximately $124 billion in their retained mortgage portfolios. Adding $100 billion to each would bring them right up to the PSPA cap of $225 billion, nearly doubling the size of the retained portfolios, greatly increasing the risk profile of the GSEs.
It is true that Fannie and Freddie already carry substantial credit risk by guaranteeing mortgages that do not appear in their retained portfolio, so when Fannie and Freddie purchase their own MBS, they aren’t necessarily increasing their exposure to credit risk.
However, purchasing additional MBS would force Fannie and Freddie to bear more interest-rate risk. When interest rates rise, the value of these assets (MBS) falls. This decrease in value, in turn, would threaten more Treasury support for the GSEs, both of which are already undercapitalized and supported by the federal government. That risk is inherent to fixed-income markets and should be borne by private investors, not the GSEs and American taxpayers.
Fannie and Freddie should be ended, not expanded. More than fifteen years after the financial crisis, they remain bloated, politically exposed, and vulnerable to being repurposed whenever elected officials dislike prevailing market outcomes.
Using the GSEs to bypass the Federal Reserve invites future administrations to treat Fannie and Freddie as acceptable alternative tools of macroeconomic policy. That kind of mission creep turns contingent liabilities into policy instruments and entrenches government intervention in financial markets.
Lowering borrowing rates is a thin justification for expanding the federal government’s role in mortgage markets. This policy will increase taxpayer exposure to interest rate risk and undermine already-fragile institutional boundaries. Housing finance does not need another government gimmick.