From May through October 2025, Fannie Mae and Freddie Mac increased their mortgage-backed securities (MBS) by nearly a third, reaching their all-time high almost four years. The move renews discussion about the future of government-sponsored entities (GSEs) under the Trump administration.
Why expansion is important
Fannie and Freddie play a central role in the American mortgage market. They buy home loans from lenders and hold them or package them into mortgage-backed securities that they can sell to investors. Their retained portfolios represent mortgages and MBSS they maintain their own balance sheet, rather than distributing it to the secondary market.
Increasing their mortgage portfolio reduces the supply of MBSs available to investors, and that scarcity increases the value of remaining securities, depresses yields, and ultimately (and hopefully) can lower the interest rates that lenders charge borrowers.
Expanding GSE portfolios is one of the most direct ways the government can influence mortgage rates without direct monetary policy intervention.
A policy instrument tailored to the Trump administration
The timing is remarkable. President Donald Trump has repeatedly criticized the Federal Reserve for not cutting rates aggressively enough and has made housing affordability a key economic priority, with proposals for 50-year mortgages, in the midst of other considerations.
The average mortgage interest rate with a fixed term of 30 years is currently 6.22%, from mid-December.
Prelude to privatization?
In addition to mortgage rate relief, the strategy could also serve a secondary purpose: improving the financial profile of both GSEs ahead of a potential public offering. That said, analysts like Chris Whalen, founder of Institutional Risk Analyst and Whalen Global Advisors, question the readiness of the companies under the tutelage of FHA Director Bill Pulte.
The two GSEs have been under government supervision for almost fifteen years since the 2008 financial crisis.
What to watch
Fannie and Freddie could add as much as $100 billion to their portfolios by 2026, a significant portion of the estimated $1.5 trillion in mortgage loans issued in each of the past years. Keep an eye on 10-year Treasury yields, which have failed to stabilize below 4% despite recent Fed rate cuts. Fannie and Freddie’s portfolio expansion is likely a large part of the rode Why Mortgage interest rates fell this summer, and could continue to do so into the new year.
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