Trump says he wants government to buy $200B in mortgage bonds in a push to bring down mortgage rates

WASHINGTON (AP) — President Donald Trump said Thursday on social media that he is directing the federal government to buy $200 billion in mortgage bonds, a move he said would help lower mortgage rates at a time when Americans are worried about home prices.

Trump and the White House have been trying to show they are responding to voters’ concerns about affordability ahead of the November midterm elections. Home prices have generally risen faster than incomes due to an ongoing construction shortage, making it harder for renters to buy their first homes and existing owners to upgrade to new properties — a challenge that dates back to Trump’s first term and the recovery from the 2008 housing market collapse that triggered the global financial crisis.

Trump said Fannie Mae and Freddie Mac, two mortgage companies regulated by the government, have $200 billion in cash that they will use for purchases.

“This will result in lower mortgage rates, lower monthly payments and make the cost of owning a home more affordable,” Trump said in a social media post.

White House officials did not immediately respond to questions about a timeline for how the purchases would be made.

The Fed has purchased mortgage bonds in the past to help lower interest rates during times of economic turmoil, leading many homeowners to refinance at rates of 3% or lower. Recent low interest rates have discouraged these homeowners from selling their properties, resulting in less inventory on the market.

“At a high level, I think this is just a Band-Aid on a deeper problem, and it’s probably not going to lower rates enough to really remove the mortgage rate lock-in effect,” said Daryl Fairweather, chief economist at real estate brokerage Redfin.

Fairweather estimates that government purchases of mortgage debt could lower interest rates on 30-year fixed-rate mortgages by 0.25 to 0.5 percentage points. But she warned that these purchases won’t address other factors, such as a chronic shortage of homes on the market that has left many Americans unable to afford homes.

Mortgage rates average about 6.2%, according to Freddie Mac. In 2008, as the U.S. economy collapsed during the Great Recession, Freddie Mac entered conservatorship along with Fannie Mae. Thirty-year mortgage rates have not been below 6% since September 2022.

“Lowering mortgage rates by a quarter or half a percentage point may stimulate an increase in marginal demand, but I don’t think it will address the constraints that exist in the housing market,” Fairweather said.

There is also a risk that Trump will spend cash reserves that are supposed to help cushion an economic downturn, similar to what happened during the Great Recession. In a sense, Freddie Mac and Fannie Mae may be more vulnerable if there is any negative impact on the housing market, which means Trump believes that is extremely unlikely.

Additionally, the Fed holds about $2 trillion worth of mortgage-backed securities on its balance sheet. This is down from $2.7 trillion in June 2022. The Federal Reserve has begun reducing its holdings of mortgage debt as the U.S. economy recovers from the global pandemic.

Mortgage rates began to climb and the consumer price index hit a four-year high in 2022 as inflation surged due to the global pandemic. Average mortgage rates are down from nearly 7% last year at the start of Trump’s second term, but the drop has not put pressure on the public to feel the cost of housing, food and energy.

When interest rates fall, monthly home debt payments may become cheaper. Lower monthly payments can improve affordability for a period of time until home prices adjust to interest rate changes. As of the middle of last year, outstanding mortgage debt was about $21.1 trillion, according to the St. Louis Fed.

Many homeowners have taken advantage of low interest rates during the pandemic to refinance their mortgages at rates of 3% or less.

Trump said last month he planned to introduce housing reform, and on Wednesday he said he wanted to prevent institutional investors from buying homes.

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Vega is from Los Angeles.