Can Donald Trump’s mortgage bond push lower home loan rates? New Fannie–Freddie limits reignite risk debate
The Trump administration has quietly expanded the scope for government-backed mortgage giants Fannie Mae and Freddie Mac to buy far more mortgage bonds than previously allowed, a move aimed at lowering home loan rates but one that has revived concerns about financial risk and policy overreach.According to an internal email obtained by the Associated Press, the Federal Housing Finance Agency (FHFA), under director Bill Pulte, has lifted portfolio caps that earlier limited Fannie Mae and Freddie Mac to holding no more than $40 billion each in mortgage bonds. The January 12 directive raises that ceiling to $225 billion apiece, effective immediately, AP reported.If fully utilised, the change would allow the two lenders to increase bond purchases by roughly $170 billion beyond the $200 billion buying programme President Donald Trump had publicly ordered to push mortgage rates lower.
Cap hike revives post-crisis risk concerns
The move effectively reverses nearly two decades of bipartisan policy consensus put in place after the 2008–09 financial crisis, when excessive risk-taking by Fannie Mae and Freddie Mac forced a government bailout and placed both firms under federal conservatorship.While both entities remain subject to a broader Treasury cap of $450 billion on mortgage investment portfolios, analysts say the new flexibility allows them to adopt a far more aggressive approach to bond buying, potentially increasing systemic risk.Neither Pulte nor the FHFA clarified whether Trump or Treasury Secretary Scott Bessent was consulted before the caps were raised. After the report surfaced, Pulte dismissed it as “fake news” on X, saying FHFA had merely given “legal flexibility” and that the firms would not exceed $200 billion in purchases.Following publication, the agency issued an additional statement saying, “Fannie and Freddie will not be allowed to go beyond the president’s buy.”
Political pressure meets market scepticism
The expansion comes amid heightened political pressure to show progress on mortgage affordability ahead of US midterm elections. However, lawmakers and economists remain sceptical that bond purchases alone can sustainably lower rates without addressing housing supply constraints.“This is just a smoke screen for Trump and Bill Pulte to tweet about — it will do little, if anything, to lower mortgage interest rates over the long term and raises questions about increased risks to Fannie and Freddie,” said Senator Elizabeth Warren, the top Democrat on the Senate banking committee.Housing experts also note that any temporary dip in borrowing costs could simply translate into higher home prices if supply remains tight.Edward Pinto of the American Enterprise Institute described Trump’s initial bond-buying plan as a “sugar high,” adding that “it may have an effect, but it will be fleeting.”
Pulte’s tenure under scrutiny
The episode adds to scrutiny of Bill Pulte’s unusually high-profile tenure at FHFA, a role traditionally kept out of political spotlight. Pulte has appointed himself chair of both Fannie Mae and Freddie Mac, overseen senior management firings, and pushed controversial policy ideas, including a 50-year mortgage proposal that critics say would sharply raise long-term borrowing costs.The FHFA email instructed the two firms to increase bond investments to “exert meaningful downward pressure” on mortgage rates, and notably said that the “commencement of increases” would not require prior agency approval — a point that has raised further alarm among market watchers.“It’s easy for the federal government to make a mistake here. They’ve done it in the past,” said Jim Parrott, a former National Economic Council official under President Barack Obama.With mortgage rates once again a political flashpoint, critics warn that loosening constraints on Fannie Mae and Freddie Mac risks reopening old fault lines in the US housing finance system, even as the long-term impact on affordability remains uncertain.
