Fannie Mae and Freddie Mac have initiated substantial purchases of mortgage-backed securities (MBS) as volatility increases in the bond market, widening spreads and creating instability, according to a source familiar with the matter.
The government-sponsored enterprises (GSEs) are stepping into the market to provide liquidity, a function central to their congressional charter. Fannie Mae and Freddie Mac were established by Congress to ensure a consistent and affordable supply of mortgage funds, and they achieve this by acquiring mortgages from lenders and packaging them into MBS. These securities are then guaranteed by the GSEs, assuring investors of timely principal and interest payments. This process, as outlined by Fannie Mae, attracts investors to the secondary mortgage market who might otherwise avoid mortgage investments, thereby increasing the available funds for housing.
The move comes as the average interest rate for a 30-year fixed mortgage recently fell to 6.06%, the lowest level since late 2022, following an administration directive for the GSEs to purchase $200 billion in agency MBS, according to JPMorgan Chase & Co. Analysts. While the administration has framed the purchases as a means to lower mortgage rates, analysts suggest rates may continue to fluctuate in the low-6% range.
Fannie Mae and Freddie Mac operate under the oversight of the Federal Housing Finance Agency (FHFA). They play a critical role in the housing finance system by providing a continuous flow of mortgage money to individuals and families purchasing homes, as well as investors acquiring multifamily dwellings. Lenders utilize the capital generated from selling mortgages to the GSEs to fund further lending activities, ensuring a stable supply of credit for the housing market.
The purchases of MBS are also intended to stabilize mortgage markets during periods of financial stress. Fannie Mae was originally chartered in 1938 to address a lack of mortgage funding during the Great Depression, and continues to operate as a shareholder-owned company under its congressional charter. Both Fannie Mae and Freddie Mac have the capacity to support mortgage lending that finances affordable housing, reducing borrowing costs for these projects.
As of today, neither Fannie Mae nor Freddie Mac have publicly commented on the specific volume or duration of their MBS purchases beyond the initial $200 billion directive. The FHFA has not issued further statements regarding the GSEs’ actions.
