In a significant pre-election move aimed at the American housing market, former United States President Donald Trump declared on January 9 that he has instructed his representatives to purchase a massive $200 billion worth of mortgage bonds. The objective, as stated by Trump, is to drive down mortgage interest rates and reduce monthly payments for homeowners, thereby restoring housing affordability which he claims was destroyed by the Biden administration.
The Announcement and Political Context
Trump made the announcement via a post on his social media platform, Truth Social. He contrasted his actions with the current administration, accusing President Biden of ignoring the housing market while being preoccupied with other issues. Trump highlighted his past decision not to sell the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, claiming that choice has now built a cash reserve of $200 billion that can be deployed for this purpose. This directive comes just months before the crucial US November midterm elections, where control of Congress is at stake. Advisers have reportedly warned that Republicans could suffer heavy losses if they fail to deliver on key voter concerns like affordability.
Execution and Financial Realities
According to reports from Bloomberg and Reuters, the bond purchases are likely to be executed by the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac. FHFA Director Bill Pulte confirmed the plan, stating to Bloomberg that the purchases "can be executed very quickly. We have the capability, we have the cash to do it, and we are going to go about executing it very smartly and in a very big way." However, he declined to provide a specific timeline while affirming they are "very serious" about the directive.
There is a discrepancy regarding the available cash. While Trump asserted the two entities have $200 billion in cash, third-quarter filings with the US Securities and Exchange Commission (SEC) showed a combined figure of less than $17 billion in cash as of September 30. Pulte clarified to Reuters that the agencies have "ample liquidity," including nearly $100 billion in available funds at each entity when considering securities purchased under agreements to resell.
Potential Impact and Expert Analysis
The strategy of purchasing mortgage-backed securities to influence lending rates is not new. During and after the COVID-19 pandemic, the US Federal Reserve undertook similar large-scale purchases. However, analysts suggest Trump's proposed $200 billion intervention would have a much smaller impact compared to the Fed's programs. Chen Zhao, head of economics research at Redfin, told Reuters that this move could potentially lower borrowing costs by 10 to 15 basis points (bps).
In recent months, both Fannie Mae and Freddie Mac have already been adding billions in mortgage-backed securities to their portfolios, a move seen as a way to push down rates and boost profitability ahead of a potential future public offering. Portfolio data indicates their combined bonds and loans grew by over 25% between June and October last year.
Trump's order is part of a broader push on housing issues. Just a day before this announcement, on January 8, he said he would move to ban institutional investors from buying single-family homes. The White House did not immediately respond to queries regarding Trump's latest statement on mortgage bonds. As the midterms approach, these economic interventions are set to become a central theme in the political debate over the cost of living and the American Dream.
