Mortgage rates experienced a significant decline on Friday, following President Donald Trump‘s announcement on social media that he has directed mortgage behemoths Fannie Mae and Freddie Mac to acquire $200 billion in mortgage bonds.
“This will result in Mortgage Rates DECREASING, monthly payments LOWEING, and making homeownership more financially accessible,” he noted in the Truth Social post.
The rate for a 30-year mortgage dipped by 22 basis points to 5.99%, aligning with the low seen on Feb. 2, 2023, per Mortgage News Daily.
Fannie Mae and Freddie, under government conservatorship, do not originate home loans. Instead, they purchase loans from lenders, combine them into mortgage-backed securities (MBS), and market them to investors — thereby replenishing lender liquidity for new loans and ensuring lower and more stable interest rates for homebuyers.
Acquiring more mortgage-backed bonds or securities does indeed lower mortgage rates. During the first two months of the Covid pandemic, as markets were unsettled, the Federal Reserve invested $580 billion in agency MBS. It continued purchasing more throughout the year. From March 2020 to June 2021, the Federal Reserve expanded its agency MBS holdings from $1.4 trillion to $2.3 trillion, according to the Dallas Fed.
The Federal Reserve also reduced its own lending rate to zero. This combination drove the average rate on the 30-year fixed mortgage to unprecedented lows, reaching just 2.75% at the start of 2021, as reported by Mortgage News Daily.
“How significant is $200 billion? This hinges on several factors, but the response in the MBS market strongly indicates its importance,” remarked Matthew Graham, COO at Mortgage News Daily, which closely monitors rates and is already observing declines due to the announcement.
Although the speed of this change and its duration remain uncertain, analysts are estimating potential mortgage rate outcomes; most predict a decrease between 25 and 50 basis points, with some projecting even greater reductions.
“We anticipate that $200 billion in MBS purchases could lead to a ~10-25bps drop in mortgage rates, potentially bringing the current 30-year headline mortgage rate down to approximately 6.0% (currently 6.21%). While this rate remains high compared to the average outstanding mortgage rate of 4.4% and the 3.25% levels seen as recently as January 2022, this reduction could stimulate both new construction demand and the turnover of existing homes,” UBS analysts noted.
In layman’s terms, if rates were to fall to even 5.9%, a buyer of the median-priced home — which hovers around $425,000, according to the National Association of Realtors — with a 30-year fixed mortgage and a 20% down payment would see their monthly payment decrease by $118. While this may seem minimal to some, for first-time buyers on the cusp of affordability, it could be impactful. They would still need to save for the down payment, which remains a significant hurdle for many first-time buyers.
Homebuilder stocks surged following the news, although they had already been working to reduce mortgage rates, bringing them down into the 5% range. Recently, their focus had shifted to rising costs due to tariffs and ongoing labor shortages. Nevertheless, the news could still influence demand from buyers for these builders.
“I think psychologically it will be beneficial,” said Ivy Zelman, executive VP of research and securities at Zelman, a Walker & Dunlop company. “I think that today, potential buyers who were unaware that builders were offering mortgage rate buydowns might enter the market.”
However, Zelman points out that in the wider housing market, it’s not just the mortgage rate that’s causing buyers to hesitate, but overall affordability as well. Consumers are stretched financially, and home prices are nearly 50% higher than pre-pandemic levels, ironically a result of the record-low mortgage rates driven by MBS purchases.
“This alone is not sufficient to truly invigorate the market because we know people struggle to qualify even at 4.99%. They may claim that mortgage rates are set to drop below 5, but we still have individuals unable to qualify at 4.99%, indicating that more effort is required,” Zelman commented.
This could also benefit builder margins, which have been tightening recently due to increased costs.
“From a demand standpoint, [it presents] perhaps a slight advantage stemming from the positive psychological impact on consumers,” remarked John Lovallo, analyst at UBS. “The greater potential lies in builders’ ability to reduce incentives, which would significantly enhance gross margins.”
Nonetheless, the decline could also enable current homeowners to enjoy savings on their monthly payments through refinancing. Rates have been consistently decreasing, with the 30-year fixed down from its recent peak of 7.16% a year ago. Applications for refinancing home loans were already 133% higher year over year prior to this announcement, as reported by the Mortgage Bankers Association.
The general guideline suggests that refinancing is only worthwhile if one can save more than 75 basis points on a mortgage rate. This could expand the refinancing pool significantly, especially for those who secured their loans in the last two years. However, the vast majority of homeowners still benefit from rates below 4%.
