Last week, the market responded to President Donald Trump’s order to Fannie Mae again Freddie Mac buying $200 billion in mortgage-backed securities (MBS). Rates briefly dipped below 6% on Friday, prompting lenders to begin preparing for a potential bailout operation.
In an email interview with HousingWire, Phil Crescenzo Jr., vice president of the Southeast division Company Nation One Mortgage Corp.he said Trump’s announcement was “quickly welcomed by the bond market as a positive sign for the future.” But he cautioned that it is too early to know if prices will stay low for long.
“Markets tend to react to changes in trajectory and indicators that point to stability,” Crescenzo said. “If future purchases were analyzed or announced, this would cause an increase in the price of the bond, leading to a decrease in interest rates for the buyer.”
While small changes in rates may not prompt every buyer or borrower to get off the phone, Crescenzo said those with higher rates who have been waiting a while are now in a good position to act.
“Using $400,000 as a loan, the difference of .25% may not be big, but if the buyer was looking at the front with an interest rate of 7%, for example, against the average of 6% for the same loan, the monthly difference is significant, at $263.00 every month,” he wrote.
Will the GSEs do what the Fed didn’t?
By buying hundreds of billions of dollars in MBS, the state-sponsored enterprises (GSEs) could raise the low mortgage rates that Trump and other officials have been clamoring for.
Apart from a reduction in benchmark interest rates by a total of 75 bps by 2025, the actions of The Federal Reserve they must not have a transformative effect. But compared to early September, before the Fed’s next three rate cuts, 30-year rates are about 40 bps lower.
Victor Kutnetsov, founder and managing director of Imperial Fund Asset Managementsaid last week that rates fell by about 35 bps after the GSEs increased their MBS purchases to $15 billion per month in October and November. And after Trump’s announcement last week, Fannie Mae 5.0 MBS spread tightened by 75 bps.
“Here’s what that means: In the short term, expect mortgage rates to reach a firmer level than the 2025 average, but investment banking analysts tend to agree that most of these MBS purchases are already priced, so the timing of the GSE’s MBS purchases will be critical,” Kuznetsov said.
“Will the GSEs buy $200B in calendar year 2026, spreading the effects of tightening over a full year? Details on the timing of the deployment have been scarce so far.”
Michelle Parkinson, senior vice president of capital markets at non-QM specialist AD Mortgageit also said that time is of the essence and that the long-term effects of MBS purchases are unknown.
“In the short term, increased demand will drive down prices, which will help home buyers afford higher prices,” Parkinson said in a statement. “Long term, if this is a one-time purchase, prices will return to normal ranges depending on the state of the economy at that time.
“Management ordering Fannie and Freddie to buy mortgage bonds is just one way to try to lower mortgage rates over the long term.”
Will borrowers jump?
Some good news for mortgage rates and improved home affordability came in the form of the December employment report, which showed modest job gains last month, and the Consumer Price Index report, which found that inflation remained low in December at an annualized 2.7%.
But market observers believe the Federal Reserve is done adjusting benchmark rates for now. I The CME Group‘s The FedWatch tool shows that 97% of interest rates want no change in the federal funds rate after the end of the Fed meeting on Jan. 27-28.
However, prices are in the area where home buyers and sellers may take action. And that creates more confidence in other lenders.
“With 30-year mortgage rates down for nearly three years, this is good news for housing,” said Jeff DerGurahian, chief investment officer and chief economist at . loanDepot.
“Whenever rates fall, they improve affordability and help more buyers qualify, while also creating opportunities for homeowners to refinance. We’ll be watching closely for details on the timing and decline of Fannie and Freddie’s MBS purchases, as that will shape the long-term impact and direction of rates.”
Crescenzo said the latest negotiations with borrowers represent a change from where they were a year or two ago.
“Consumers today are not very focused on rates because of the state of the market, and how rates have been consistent over the past few years,” he wrote. “They are always worried about monthly payments, budgets, and the process as a whole, but the unrealistic hopes that were started during the violence are now being heard.
“I also need very small buyers who are waiting for a big rate cut or to compare the terms of the 2021 seasons. Any reduction in interest rates helps to create more negotiations and open more doors.”
