Quick overview

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Fannie Mae and Freddie Mac have started placing large orders to buy mortgage-backed securities, entering a market turbulent by widening bond spreads amid a spike in volatility.

The government-controlled companies are expanding their already substantial portfolios of bonds and loans to capitalize on a sharp selloff.

President Donald Trump gave instructions two months ago to buy $200 billion in MBS  to increase housing affordability. The recent spike in spreads that caused mortgage rates to rise to a three-month high may be mitigated by the increased buying.

However, it might only partially counteract broader market pressures from the US-Iran conflict, which has raised borrowing costs and resulted in a noticeable increase in Treasury yields on Friday.

Through their so-called retained portfolios—the bonds and loans they hold onto rather than selling to investors—Fannie and Freddie, which buy and package home loans into securities and financially guarantee them to buyers, are among the biggest holders of US mortgage debt. Before being placed under federal conservatorship in 2008, the two had a combined value of $1.5 trillion; by late 2022, that amount had fallen to just $158 billion.

The portfolios have been increasing since the middle of last year, reaching $278 billion as of January. The roughly $9 trillion MBS market moved almost immediately after Trump ordered Fannie and Freddie to increase bond and loan purchases. The relative yields on recently issued securities relative to Treasuries narrowed by roughly 0.2 percentage points.