Trade groups push plan to let GSEs buy MBS to ease mortgage rates
Trade groups representing community banks and home lenders are urging the Trump administration to allow Fannie Mae and Freddie Mac to purchase mortgage-backed securities (MBS) to help bring down mortgage rates.
The idea relies on amending the Preferred Stock Purchase Agreements (PSPA) to enable the GSEs to purchase up to $300 billion of their own MBS and Ginnie Mae MBS when the spread between the 30-year mortgage rate and the 10-year Treasury exceeds 170 basis points
The proposal was outlined in a letter sent by the Community Home Lenders of America (CHLA) and the Independent Community Bankers of America (ICBA) to the Treasury Secretary Scott Bessent and the Federal Housing Finance Agency (FHFA) Director Bill Pulte.
“Regulators must address the secular and structural decline in demand for mortgage-backed securities,” the trade groups stated.
According to them, the GSEs are jointly $246 billion below their current MBS caps, which means they could begin immediately working to reduce spreads. That could lower mortgage rates, currently around 6.35%, by roughly 30 basis points.
As of Oct. 17, the spread was 222 basis points, above the 140-170 that has persisted since 2022, when the Federal Reserve suspended MBS purchases. Today, neither the GSEs nor the Fed “have acted as buyers of last resort for MBS to stabilize mortgage rates at times and ways that are appropriate,” the letter states.
The trade groups noted a limited appetite for MBS among investors, such as domestic and foreign banks, foreign central banks and insurance companies.
The proposal comes a week after Fed Chair Jerome Powell signaled the end of the bank’s quantitative tightening program, marking the conclusion of its long-running effort to reduce its balance sheet.
“We believe this is an appropriate time for Fannie and Freddie, under your authority, and again for a limited amount of time, to step in and address this secular decline in demand for MBS,” the trade groups said. “In no way would this authority replicate the unlimited authority the GSEs exercised in the past regarding their retained portfolios.”