Housing market affordability is so strained that Trump directs Fannie and Freddie to buy $200B mortgage bonds

President Trump announced that Fannie Mae and Freddie Mac will purchase an additional $200 billion in mortgage bonds. He believes this action will lower mortgage rates and monthly payments, making homeownership more affordable. The price of long-term bonds, including mortgage bonds, is determined by market demand. When demand increases, bond prices rise and yields, like mortgage rates, fall. Historically, the Federal Reserve's quantitative easing involved buying long-term assets, lowering mortgage rates. Conversely, quantitative tightening has removed the Fed as a major buyer, potentially increasing mortgage rates. Trump's proposal aims to increase demand for mortgage bonds by having Fannie Mae and Freddie Mac absorb a larger share. Currently, these government-sponsored enterprises hold a relatively small portion of outstanding mortgage-backed securities. If they purchase an additional $200 billion, they would approach their legal limits. The goal is to accelerate the compression of the "mortgage spread," the difference between Treasury yields and mortgage rates. This move could potentially stabilize mortgage rates by reintroducing a significant buyer into the market. The market has lacked a consistent buyer of last resort since the Federal Reserve ended its quantitative easing.