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

By David Lawder

SAVAGE, Minnesota, Jan 9 (Reuters) – U.S. Treasury Secretary Scott Bessent on Friday said the goal of the Trump administration’s launch of mortgage-backed securities purchases is to roughly match the rate at which those bonds are rolling off the Federal Reserve’s balance sheet.

“What is happening is the Fed has about $15 billion of roll-off every month,” Bessent told Reuters in an interview, referring to the central bank’s ongoing reduction of MBS from its $6.3 trillion overall bond portfolio. “So I think the idea is to roughly match the Fed, which has been pushing the other way.”

President Donald Trump, in his latest bid to contain an affordability problem in the U.S. housing market, on Thursday ordered the Federal Housing Finance Agency – which oversees mortgage finance giants Fannie Mae and Freddie Mac – to purchase $200 billion of bonds issued by the two companies. FHFA Director William Pulte on Friday said they had started with a $3 billion initial round of purchases.

The Fed holds just over $2 trillion of MBS, a legacy of the central bank’s past efforts to provide stimulus to the economy during crises like the global financial crisis and more recently the pandemic. But that stash has been shrinking for more than two years at a rate of between $15 billion and $17 billion a month, a dynamic that some have said is preventing mortgage rates from falling further than they have over the last year or so. 

The average rate on a 30-year fixed-rate mortgage has fallen to around 6.2% from nearly 8% in 2024, but remains well above levels in the 3% range seen during the pandemic. Borrowing costs and elevated housing prices together have exacerbated the affordability problem that is weighing on Trump’s approval ratings.

Bessent said the purchases – being funded by the two firms’ own balance sheets – were unlikely to directly bring mortgage rates down, but could do so indirectly by reducing the yield spread on Fannie and Freddie securities over U.S. Treasuries.

The two firms support the housing market by purchasing loans originated by banks and other direct home lenders, repackaging those loans into bonds and selling those to investors. The purchases reopen space on lenders’ balance sheets to make new loans.

Trump and his team have also been talking about reprivatizing Fannie and Freddie, which came into government ownership in 2008 during the financial crisis. Bessent said the purchases would not harm their financial standing, asserting the two have ample cash and the actions could increase their earnings.

(Reporting By David Lawder; writing by Dan Burns; Editing by Rosalba O’Brien)