MW How you could benefit from Trump's plan for buying mortgage bonds
By Joy Wiltermuth
Borrowers with 6% and 7% mortgage rates might see a refinancing opportunity if things work out as Trump foresees
President Trump glances out a White House window during Friday's meeting with oil-industry executives.
When homeowners take out a new mortgage or refinance an old one, there's a good chance it ends up packaged up with other loans and sold to investors as bonds with U.S. government guarantees.
That's the type of mortgage bonds the Federal Reserve bought up in bulk during the pandemic. It's also the sort President Donald Trump on Thursday ordered his "representatives" to buy as part of a new $200 billion plan to coax mortgage rates lower.
The bonds allow investors a way to earn income by taking a stake in other people's monthly mortgage bills. But the guarantees mean investors aren't on the hook if borrowers default or another foreclosure wave takes hold.
Optimism around the Trump directive, while still lacking specifics, added to an already strong rally benefiting mortgage bonds lately. On Friday, it was enough to pull the 30-year mortgage rate below the psychologically important 6% level.
Read: Mortgage rates drop below 6% for the first time in 3 years as Trump floats purchase of mortgage bonds
"I thought we'd tighten by five to 15 basis points," said Harley Bassman, a mortgage veteran and managing partner at Simplify Asset Management of Friday's action. "We tightened by about 10 basis points."
When demand grows for mortgage bonds it can spark a rally, and "spreads" tighten. That's because investors are accepting less spread, or extra compensation above a benchmark rate, in this case the 10-year Treasury rate BX:TMUBMUSD10Y. Cost savings then feed into new 30-year mortgage rates.
Yet for Trump's directive to lower mortgage rates, other investors will need to keep buying, too, and not seize an opportunity to profit by selling into a stronger market.
How mortgage bonds influence rates
Wall Street refers to this $9 trillion bond market as "agency mortgage-backed securities."
These are a starting point for most new home loans. The bulk of U.S. borrowers pay a fixed rate based on the current 10-year Treasury yield, which was at 4.17% on Friday, plus a spread. The spread hinges on investor demand for these bonds. Having more buyers in a market can lower spreads and pull down mortgage rates.
It won't fix the scarcity of homes built over at least a decade, which has helped fueled the U.S. affordability crisis.
"The risk is home prices go up as rates come down," Scott Buchta, head of fixed-income strategy at Brean Capital, of Trump's plan. "Then, it doesn't help with affordability."
From the archives (November 2025): America's heartland is the epicenter of the housing-affordability crisis
Despite this, Trump looks ready to pull the levers of power within his reach, including a crucial source of credit for U.S. homeowners.
Trump's new directive can tap a main lever of mortgage finance.
"Congressional approval isn't required for this proposal to have the GSEs buy $200 billion of agency mortgages," said Dan Hyman, portfolio manager and bond-market giant Pimco's head of agency mortgages. "We view this as a structural shift in the mortgage market."
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What GSEs do
Lenders in recent years have been encouraged to make home loans that are safer, more affordable for borrowers and aligned with agency standards required to be included in government-backed-bond deals.
That way, investors have bonds that provide income and lenders don't have to keep whole mortgage loans on their books - though growing Freddie Mac (FMCC) and Fannie Mae (FNMA) portfolios can create pitfalls. Those "government-sponsored enterprises" can keep a lid on mortgage rates, but they likely will need to borrow in the market to fund another $200 billion in purchases.
In the past five months alone, the GSEs added roughly $60 billion in purchases to their mortgage-bond portfolios, according to Pimco's Hyman. For context, total net supply in the sector was $146 billion last year. "This proposal is likely to drive additional demand for mortgages, help reduce mortgage rates, improve housing affordability and tighten spreads," he said.
Unlike the "private" mortgage bonds that turned toxic after 2006, the agency market is considered a relatively safe asset class, akin to the $30 trillion Treasury market. But both still carry interest-rate risks, a factor representing a painful reminder for investors.
The largest entities owning agency mortgage bonds are banks, the Fed and overseas institutions, as well as investment firms managing bond funds, including Pimco, BlackRock $(BLK)$ and others. BlackRock declined to comment.
Since Freddie and Fannie failed in 2008, they've remained in government conservatorship, meaning that any repeat of past mistakes poses potential risk to U.S. taxpayers.
They had quietly been buying up more agency mortgage bonds before Trump announced his new plan. But they also currently have caps on the total amount they can retain, at $225 billion apiece. Their holdings recently reached about $128 billion each, mortgage experts said. Buying another $200 billion combined would exceed their caps.
The Federal Housing Finance Agency, which oversees Freddie and Fannie, didn't respond to a request for comment.
Quasi-QE
The Fed ?previously used its balance sheet to stabilize markets in crisis by purchasing Treasury?s and agency mortgage bonds, a process known as "quantitative easing," or QE.?
That can aid markets but also push up asset prices. Trump's order for the government to buy assets has a similar feel, if on a smaller scale than the Fed's efforts.
"It's a 'QE' exercise for sure," said Buchta at Brean Capital. "It's injections of capital into the markets with the purpose of driving spreads down."
?That could benefit Freddie and Fannie's financial health, with agency mortgage bonds kicking off a more than 8% return last year. That was the highest yearly return in more than two decades, according to BofA Global.
Investors with bond funds might have noticed these gains, as well as those in related exchanged-traded funds. The Simplify MBS ETF MTBA one-year total return was pegged at roughly 7.8%, according to data available Friday. The Janus Henderson Mortgage-Backed Securities ETF's JMBS return was about 8.7%.
Beyond bonds, getting mortgage rates below 6% could provide meaningful relief to borrowers who have taken out loans at higher mortgage rates since 2022.
"Refinancing is important economically, because for people in those homes it becomes more affordable to make their mortgage payments," Brean Capital's Buchta said.
From the archives (December 2025): Here are the ideas that could really help solve America's affordability crisis in 2026
-Joy Wiltermuth
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January 10, 2026 11:00 ET (16:00 GMT)
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