Fannie and Freddie Submit Aggressive Bids for Mortgage-Backed Securities

Fannie Mae and Freddie Mac Increase Mortgage-Backed Security Purchases

Fannie Mae and Freddie Mac, the government-controlled entities, have placed significant orders to purchase mortgage-backed securities in response to widening bond spreads and increased volatility in the market. According to a person with direct knowledge of the matter, their efforts follow a directive from President Donald Trump to acquire $200 billion of MBS, aimed at driving down mortgage rates and bolstering housing affordability.

The increased buying activity comes as mortgage rates have surged to a three-month high due to the Iran conflict. However, the impact on mortgage rates may be limited, as the broader market pressures stemming from the conflict continue to weigh on the market. Treasury yields jumped on Friday, exacerbating the situation.

Fannie and Freddie, under federal conservatorship since 2008, have been gradually increasing their portfolios of bonds and loans. Their retained portfolios, which include bonds and loans they hold onto rather than sell to investors, have risen to $278 billion as of January, up from $158 billion in late 2022. This increase has sparked a response in the roughly $9 trillion MBS market, with relative yields to Treasuries on recently issued securities narrowing by about 0.2 percentage point.

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The directive from President Trump has already had an effect on the MBS market, with the pair initially buying at a modest pace. However, the recent surge in interest-rate volatility, driven by oil price swings amid the Middle East conflict, has led to a widening of mortgage-bond spreads, reducing the profit potential and scope to influence mortgage rates.