Trade groups are pushing a plan to let GSEs buy MBS to lower mortgage rates

Trade groups representing community banks and home lenders are urging the Trump administration to allow it Fannie Mae And Freddie Mac to purchase mortgage-backed securities (MBS) to help lower mortgage rates.

The idea relies on amending the Preferred Stock Purchase Agreements (PSPA) to allow the GSEs to purchase and Ginny does MBS when the spread between the 30-year mortgage rate and the 10-year government bond rate is greater than 170 basis points

The proposal was set out in a letter from the Community Home Lenders of America (CHLA) and the Independent Community Bankers of America (ICBA) to Treasury Secretary Scott Bessent and the Federal Agency for Housing Financing (FHFA) Director Bill Pulte.

“Regulators must address the long-term and structural decline in demand for mortgage-backed securities,” the trade groups said.

According to them, the GSEs are collectively $246 billion below their current MBS limits, meaning they could start tightening spreads immediately. That could reduce mortgage rates, which are currently around 6.35%, by about 30 basis points.

On October 17, the spread was 222 basis points, above the 140-170 that has persisted since 2022, when the Federal Reserve suspended MBS purchases. Today, neither the GSEs nor the Fed “have acted as buyers of last resort for MBS to stabilize mortgage rates at times and in ways that are appropriate,” the letter said.

The trade groups noted limited interest in MBS among investors, such as domestic and foreign banks, foreign central banks and insurance companies.

The proposal comes a week after Fed Chairman Jerome Powell announced the end of the bank’s quantitative tightening program, marking the conclusion of its long-running efforts to shrink its balance sheet.

“We believe this is an opportune time for Fannie and Freddie, under your authority, and again for a limited time, to intervene and address this long-term decline in demand for MBS,” the trade groups said. “This authority would in no way replicate the unfettered authority that the GSEs historically exercised over their retained portfolios.”

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