Mortgage-backed securities (MBS) are debt obligations that represent claims to the cash flows from pools of mortgage loans, most commonly on residential property. These mortgages are funded by lenders across the U.S., who, in turn, sell them to Freddie Mac or Fannie Mae (or issue MBS through the Ginnie Mae process), or pool them and sell them to investment banks. Put another way, most residential mortgage loans are purchased from banks, mortgage companies, and other originators and then assembled into pools by governmental, quasi-governmental, or private entities.
We mention this because in early January, President Donald Trump said that he is ordering his “representatives” to buy $200 billion in mortgage bonds to bring down housing costs. To quote him:
"Because I chose not to sell Fannie Mae and Freddie Mac in my First Term ... it is now worth many times that amount — AN ABSOLUTE FORTUNE — and has $200 BILLION DOLLARS IN CASH. I am instructing my Representatives to BUY $200 BILLION DOLLARS IN MORTGAGE BONDS. This will drive Mortgage Rates DOWN, monthly payments DOWN, and make the cost of owning a home more affordable.”
Federal Housing Finance Agency (FHFA) Director Bill Pulte said on X that Fannie Mae and Freddie Mac will execute the purchase although the combined cash and cash equivalents listed on the two firms' balance sheets in their third quarter earnings reports to the Securities and Exchange Commission (SEC) was less than $17 billion as of September 30.
Pulte said the two agencies had "ample liquidity" to carry out Trump's order, including nearly $100 billion in available funds at each entity using assets other than what is listed as "cash" on each company's balance sheet.
It is important to keep things in perspective regarding this activity or any actions in the capital markets. Originators should know that the price activity that occurs in those markets directly impacts mortgage rates, which in turn moves the rates that borrowers see on their rate sheets (pricing engines).
SIFMA (Securities Industry and Financial Markets) Research tracks the activities and volumes that trade in the secondary markets. For U.S. MBS, this includes issuance, trading, and outstanding data. In 2025, total MBS issuance was $1.894 trillion, +18.7 percent year-over-year. Trump’s announcement is assumed to mean MBS that are issued by the “Agencies,” which averaged about $352 billion a day last year (non-Agency trading in 2025 came in around $1.687 billion per day).
If the estimates from the Mortgage Bankers Association are in the ballpark at $2.2 trillion, that is nearly $8 billion per business day, or $160 billion a month. Thus, the $200 billion purchase mentioned by President Trump is a little over one month’s worth of new production. Agency MBS prices improved after his statement, but then worsened (more than they had gained) when “Sell America” arose during the talk of taking Greenland and imposing punitive tariffs on countries that opposed him.
Yes, the capital markets trumped government intervention. Pulte confirmed that Fannie Mae and Freddie Mac will not exceed $200 billion in additional mortgage-backed securities purchases, halting speculation that buying could expand further. While the agency has granted the GSEs legal flexibility beyond prior caps, some of the uncertainty around the scale of government support of the mortgage market was reduced helping give investors a more defined framework for assessing housing and real estate conditions, signaling that any impact from GSE MBS purchases will be capped until changed by a tweet.
Supply and demand are important to free market prices. Trump’s call to purchase $200 billion in mortgage bonds was very similar to what the Federal Reserve did when it bought those same types of bonds during the pandemic and its aftermath, “quantitative easing” leading to criticism. But compared with the Fed's much larger bond purchases, $200 billion would have a fairly small impact on mortgage rates. As opposed to using capital earned from doing business, as Fannie and Freddie would, in the Fed's case it used money it created as the U.S. central bank to fund those purchases.
Pulte said the Fed and the Treasury Department would play no role in the current MBS purchases, which would be funded by liquidity on Fannie Mae and Freddie Mac's balance sheets.
Assuming that Freddie Mac and Fannie Mae are indeed the ones buying Agency MBS, what are they buying, and when? No one quite knows. Most MBS are issued by Ginnie Mae, a U.S. government agency, or Fannie Mae and the Freddie Mac, U.S. government-sponsored enterprises (GSEs). Ginnie Mae, backed by the full faith and credit of the U.S. government, guarantees that investors receive timely payments, but it is doubtful that Freddie and Fannie will be out buying Ginnies.
Fannie Mae and Freddie Mac also provide certain guarantees and, while not backed by the full faith and credit of the U.S. government, have special authority to borrow from the U.S. Treasury. Some private institutions, such as brokerage firms, banks, and homebuilders, also securitize mortgages, and such securities are known as "private-label" MBS, and it is also doubtful that these will be included.
An important risk regarding residential MBS and collateralized mortgage obligations involves prepayments, typically because homeowners refinance when interest rates fall. Such prepayments tend to return principal to investors precisely when their options for reinvesting those funds may be relatively unattractive. In addition to prepayment risk, investors in these securities may also be exposed to significant market and liquidity risks.
Agency MBS prices received a “shot in the arm” when President Trump’s announcement came out. But since, analysts and industry veterans have taken a look at the proposal and decided that the impact is not great. In addition, we’ve certainly seen how one day of price movement wipes out the entire gains from the idea of buying $200 billion in MBS. The dollar figure just doesn’t have the same inspiring qualities as in the past.
