In a significant move targeting America's persistent housing affordability crisis, US President Donald Trump has unveiled a plan for the federal government to purchase a massive $200 billion worth of mortgage bonds. Announced via a social media post on Thursday, the initiative aims to directly reduce mortgage interest rates and monthly payments for American homebuyers.
The Mechanics of the $200 Billion Mortgage Push
President Trump stated that the funds for this large-scale intervention will be sourced from the cash reserves of Fannie Mae and Freddie Mac. These two mortgage finance giants have remained under government conservatorship since the 2008 financial crisis. According to Trump, the companies currently hold approximately $200 billion in cash, which will be deployed to buy mortgage bonds. "This will drive Mortgage Rates DOWN, monthly payments DOWN, and make the cost of owning a home more affordable," the President wrote.
The announcement is strategically timed as the White House seeks to address voter concerns over living costs ahead of the November midterm elections. For years, home price increases have consistently outpaced income growth, a problem rooted in a chronic shortage of new housing supply. This imbalance has locked many renters out of homeownership and made it difficult for existing owners to upgrade.
Expert Skepticism and Structural Challenges
While the plan intends to lower borrowing costs, housing economists express doubts about its effectiveness in solving deeper market issues. Daryl Fairweather, Chief Economist at Redfin, likened the proposal to "putting a Band-Aid on a deeper issue." She estimates the bond purchases might reduce rates on a 30-year fixed mortgage by only 0.25 to 0.5 percentage points.
"Lowering mortgage rates by maybe a quarter point or half a point maybe will encourage more demand on the margins, but I don’t think it’s going to solve the restrictions that exist in the housing market," Fairweather told the Associated Press. A major hurdle is the "mortgage rate lock-in" effect, where homeowners with existing rates as low as 3% or less are reluctant to sell, severely limiting available inventory.
Currently, the average mortgage rate sits around 6.2%, according to Freddie Mac, and hasn't dipped below 6% since September 2022. The plan also carries financial risk, as it would draw down the cash buffers that protect Fannie Mae and Freddie Mac during potential economic downturns.
Broader Context and Future Reforms
This proposed action echoes past interventions. The Federal Reserve previously purchased mortgage-backed securities to stabilize markets, amassing a portfolio that still holds about $2 trillion of such assets. The US housing affordability squeeze worsened post-pandemic as inflation soared, pushing the consumer price index to a four-decade high in 2022.
President Trump has indicated that more comprehensive housing reforms are forthcoming. Recently, he expressed a desire to prevent institutional investors from purchasing homes, aiming to increase availability for individual buyers. As of mid-2024, the total outstanding mortgage debt in the United States is a staggering $21.1 trillion, underscoring the scale of the market the administration is trying to influence.
While lower rates can provide temporary relief, experts caution that without a substantial increase in housing supply, the fundamental challenge of affordability is likely to persist, leaving the efficacy of this $200 billion bond plan in question.
