President Donald Trump has ordered Fannie Mae and Freddie Mac to purchase $200 billion in mortgage-backed securities in a bid to lower mortgage rates and ease housing affordability, Scott Carpenter and Katy O’Donnell of Bloomberg report. While the move could reduce borrowing costs by as much as a quarter point, it also marks an unprecedented step for a US president to directly influence housing finance through large-scale asset buying. Critics warn the directive blurs the line between fiscal policy and monetary policy, potentially undermining Federal Reserve independence and introducing political risk into mortgage markets, even as supporters argue it will help first-time and younger homebuyers. They write:
With his directive ordering Fannie Mae and Freddie Mac to buy $200 billion of mortgage bonds, President Donald Trump has opened a new front in the administration’s effort to bolster housing affordability.
Yet by pressing the government-backed housing-finance giants to act as large-scale buyers, the move also signals a broader assertion of executive authority, effectively placing the White House in a role traditionally reserved for the Federal Reserve and intensifying debate over how far presidents can go in steering financial markets.
If the firms carry out the purchases as instructed — the timing and pace are still unclear — it would be the first time in living memory a US president has directly intervened in housing finance through large-scale asset buying, according to market participants. […]
While the $200 billion the government-sponsored enterprises have been instructed to buy is modest compared with the Fed’s quantitative-easing programs, which have run into the trillions of dollars, the purchases could still exert meaningful pressure on mortgage rates, potentially lowering them by as much as a quarter percentage point, analysts said. […]
“These purchases may be justified in terms of housing affordability, which is outside the Fed’s mandate, but the mortgage market is not isolated — it’s tied up with overall interest-rate setting policy,” said Jeffrey Gordon, co-director of Columbia Law School’s Ira M. Millstein Center for Global Markets and Corporate Ownership. “For the executive branch to undertake what amounts to a form of monetary policy sets a new precedent and chips away at Fed independence.” […]
The situation highlights a fundamental tension between the administration’s desire to use the GSEs as a policy lever and the traditional expectations of private investors, strategists at JPMorgan Chase & Co. wrote late Thursday.
“There’s a tension between targeting the mortgage rate today and the go-forward profitability of the GSEs.”
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