President Trump has announced a plan to purchase $200 billion in mortgage bonds, aiming to reduce mortgage rates and make housing more affordable. The move is part of his efforts to address voter concerns about affordability ahead of the midterm elections.
The plan involves using the cash reserves of Fannie Mae and Freddie Mac, two government-run companies under conservatorship, to buy mortgage bonds. This could lead to lower mortgage rates, monthly payments, and make homeownership more affordable. However, experts warn that this approach may have unintended consequences, such as reigniting home price inflation due to supply constraints.
The Federal Reserve has previously bought mortgage bonds during economic turmoil to reduce interest rates, helping homeowners refinance into rates of 3% or less. While the government's plan could provide temporary relief, it may not address other factors driving high housing costs, like limited supply.
According to Daryl Fairweather, chief economist at Redfin, the government purchases could shave 0.25 to 0.5 percentage points off the rate for a 30-year fixed-rate mortgage. However, she also noted that this wouldn't tackle other issues like supply constraints.
Mortgage rates have been averaging around 6.2%, with thirty-year rates not seen below 6% since September 2022. The plan's success depends on how well it addresses the root causes of high housing costs, including limited supply and affordability.
The move has also sparked concerns about Fannie Mae and Freddie Mac's financial stability, as Mr. Trump would be spending their cash reserves, which are meant to act as a buffer against economic downturns. The plan's risks highlight the challenges in addressing the complex issues surrounding housing affordability.
The plan involves using the cash reserves of Fannie Mae and Freddie Mac, two government-run companies under conservatorship, to buy mortgage bonds. This could lead to lower mortgage rates, monthly payments, and make homeownership more affordable. However, experts warn that this approach may have unintended consequences, such as reigniting home price inflation due to supply constraints.
The Federal Reserve has previously bought mortgage bonds during economic turmoil to reduce interest rates, helping homeowners refinance into rates of 3% or less. While the government's plan could provide temporary relief, it may not address other factors driving high housing costs, like limited supply.
According to Daryl Fairweather, chief economist at Redfin, the government purchases could shave 0.25 to 0.5 percentage points off the rate for a 30-year fixed-rate mortgage. However, she also noted that this wouldn't tackle other issues like supply constraints.
Mortgage rates have been averaging around 6.2%, with thirty-year rates not seen below 6% since September 2022. The plan's success depends on how well it addresses the root causes of high housing costs, including limited supply and affordability.
The move has also sparked concerns about Fannie Mae and Freddie Mac's financial stability, as Mr. Trump would be spending their cash reserves, which are meant to act as a buffer against economic downturns. The plan's risks highlight the challenges in addressing the complex issues surrounding housing affordability.
I'm curious, how is it possible for the government to just take $200 billion from Fannie Mae and Freddie Mac without thinking about what will happen when they run out of cash? 
I mean, these companies are already struggling because of their conservatorship, so now we're talking about using up even more of their reserves. What's going to happen if interest rates go up or there's another economic crisis? It sounds like a recipe for disaster... 
and the fed has already bought bonds during economic turmoil to reduce rates... isn't this just kinda what they're doing again? 
. I wish more thought was put into addressing supply constraints though 
. Maybe they're trying to help, but we shouldn't assume this plan will fix everything overnight 
.
we need some real solutions not just band aids... Fannie and freddie's finances are gonna be all messed up after this move, dont you think? 
. If it just inflates home prices again 'cause there's not enough supply, that's just gonna kick the can down the road 
. I guess only time'll tell if this plan really makes a difference 
.
. what if this just kicks the can down the road and doesn't actually address the root cause of the problem? 
it's all about how they execute this plan, you know? gotta keep an eye on those rates and see if it really makes housing more affordable for the average joe 
... its all about timing, if the economy's still shaky after 200 bil is spent on bonds, where's the real relief gonna come from? & what happens to those cash reserves? they're not infinite, fam 