Bessent: Goal of MBS buys is to match Fed run-off

• The Fed currently holds over $2 trillion in MBS and has been reducing holdings by $15-17 billion monthly for over two years, a dynamic some believe has prevented mortgage rates from falling further
• The 30-year fixed mortgage rate has declined to around 6.2% from nearly 8% in 2024, but remains well above the 3% range seen during the pandemic
• Bessent stated the purchases are unlikely to directly lower mortgage rates but could indirectly reduce them by narrowing the yield spread between Fannie/Freddie securities and U.S. Treasuries, while potentially boosting the firms' earnings

Summary: Bessent on MBS Purchases to Match Fed Run-off

Key Development:

U.S. Treasury Secretary Scott Bessent announced that the Trump administration's mortgage-backed securities (MBS) purchase program aims to match the Federal Reserve's monthly MBS roll-off of approximately $15 billion. President Trump ordered $200 billion in bond purchases through the Federal Housing Finance Agency (FHFA) to address housing affordability concerns.

Key Figures:

• $200 billion: Total authorized MBS purchases by Fannie Mae and Freddie Mac
• $15 billion: Monthly Fed MBS roll-off rate to be matched
• $3 billion: Initial purchase round announced by FHFA Director William Pulte
• $2 trillion: Current Fed MBS holdings (down from pandemic-era highs)
• 6.2%: Current 30-year mortgage rate, down from nearly 8% in 2024 but well above pandemic-era 3%

Main Companies/Entities:

Fannie Mae and Freddie Mac (government-sponsored enterprises under FHFA oversight) will execute purchases using their own balance sheets.

Market Implications:

Bessent indicated the purchases may not directly lower mortgage rates but could indirectly reduce them by narrowing the yield spread between agency MBS and U.S. Treasuries. The program could boost Fannie and Freddie earnings and won't harm their financial standing. The Fed's ongoing balance sheet reduction has been identified as a factor preventing further mortgage rate declines.

Strategic Context:

The initiative addresses housing affordability challenges affecting Trump's approval ratings. Trump administration continues discussing reprivatization of Fannie Mae and Freddie Mac, both in government conservatorship since the 2008 financial crisis.