– Mortgage Rates Drop to Lowest Level in Nearly 3 Years
Mortgage Rates Drop Following Trump Announcement
Mortgage rates fell sharply on friday after President Donald Trump announced he is directing Fannie Mae and Freddie Mac to purchase $200 billion in mortgage bonds. Trump stated on his Truth Social account that this action “will drive mortgage rates DOWN, monthly payments DOWN, and make the cost of owning a home more affordable.”
The rate on a 30-year mortgage decreased 22 basis points to 5.99%,matching the lowest rate since february 2,2023,according to Mortgage News Daily.
Fannie Mae and Freddie Mac,currently under government conservatorship,do not directly originate home loans. instead, they purchase loans from lenders, package them into mortgage-backed securities (MBS), and sell them to investors. This process replenishes lender funds, enabling them to issue new loans and maintain lower, more stable interest rates for homebuyers.
Increased purchases of MBS typically led to lower mortgage rates. During the initial two months of the COVID-19 pandemic, the Federal Reserve purchased $580 billion in agency MBS as markets experienced volatility. This continued throughout the year,increasing the Federal Reserve’s agency MBS holdings from $1.4 trillion to $2.3 trillion between March 2020 and June 2021, according to the Dallas Fed.
The Federal Reserve also reduced its benchmark lending rate to zero. This combination drove the average rate on a 30-year fixed mortgage to a record low of 2.75% at the beginning of 2021,as reported by Mortgage News Daily.
“How big a deal is $200 billion? This depends on a few factors, but the reaction in the MBS market is enough to tell you that it matters,” said Matthew Graham, chief operating officer at Mortgage News Daily. He noted that rates are already falling in response to the announcement.
Analysts predict the rate drop will likely fall between 25 and 50 basis points, though the timeline for implementation remains unclear.