Fannie Mae and Freddie Mac have added billions of dollars of mortgage-backed securities and home loans to their balance sheets in recent months, fueling speculation that they're trying to push down lending rates and boost their profitability ahead of a potential public offering.
The government-backed housing-finance giants increased their retained portfolios — the portion of bonds and loans they hold onto rather than sell to investors — by more than 25% in the five months through October, according to the latest figures. That's lifted their combined positions to $234 billion, the most since 2021. Analysts estimate they could add as much as $100 billion more next year.
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While Trump administration officials have remained tight-lipped on the MBS purchases, they've stated repeatedly this year that they would
For now, though, the impact is mostly being felt in the $9 trillion US agency MBS market. As the government-sponsored enterprises snap up more and more bonds, they're curbing the flow of the securities into the market and supporting prices. Moreover, having two large buyers step in when spreads widen could also dampen volatility and, in the process, alter how investors evaluate risk.
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"If you want to lower mortgage rates, one of the most direct ways to do so is simply directing the GSEs to purchase more mortgage bonds," said Vitaliy Liberman, a portfolio manager at DoubleLine Capital. "This administration is looking at everything."
Representatives for Fannie Mae, Freddie Mac and the Federal Housing Finance Agency, which oversees both companies, didn't respond to multiple requests for comment.
Long used as a short-term pipeline for loans awaiting securitization, the retained portfolios
By 2008, their combined holdings swelled to more than $1.5 trillion, and the portfolios had become Fannie and Freddie's primary profit engines. They weren't limited to safer agency paper, either. The companies also loaded up on private-label bonds and other assets that proved far riskier than expected. When the housing market buckled during the financial crisis, those positions — and the leverage behind them — delivered heavy losses that helped push Fannie and Freddie into conservatorship.
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In the aftermath, the Treasury forced the pair to unload assets and imposed strict caps on how much they could hold. By late 2022, their retained portfolios had shrunk to just $158 billion.
But now, assets are climbing again, rising more than $50 billion in the five months through October. Even after the jump, the firms remain more than $200 billion below their cap, leaving ample room for further growth. The pickup has caught the attention of analysts, who say that with officials offering little explanation, Wall Street is left to speculate about what's driving the shift — and how much the GSEs might add next year.
Lower Mortgage Rates
One line of thinking is that the buildup is aimed at nudging mortgage rates down. By keeping more loans on their books instead of selling them into the market, the GSEs shrink the supply of MBS available to investors, a shift that can compress yields and, in turn, lower lending rates.
The expansion is unfolding as the Trump administration ramps up its focus on housing affordability. Treasury Secretary Scott Bessent said in September that the president may declare a "
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Despite the administration's push, mortgage rates have remained stubbornly high since 2022, when the Federal Reserve began hiking its target rate to stave off inflation. Even after 1.75 percentage point of rate cuts since 2024, the average 30-year home loan rate is still above 6%. Citigroup Inc. forecasts that Fannie and Freddie will boost their combined retained portfolios by roughly $100 billion in 2026, with an outside chance the increase could reach $250 billion. Such growth, the bank estimates, could compress MBS risk premiums by about 0.25 percentage point, with some or all of that passing through to the rates consumers pay on mortgages.
"Since Fannie and Freddie are still substantially owned by the Treasury, the administration still has a great deal of influence over them," said Walt Schmidt, a strategist at FHN Financial. "It gives them a flexible tool to lower interest rates for consumers, similar to the Federal Reserve," which since 2022 has been allowing its own mortgage-bond holdings to roll off its balance sheet.
Expanding their retained portfolios could also help set the stage for a public offering, market watchers say. More MBS on the balance sheet means more interest income, and potentially higher profits, at a time when doubts about the GSEs' earnings power relative to their debt remain a hurdle to any share sale.
The Trump administration has already begun laying the groundwork, including informal outreach to investment banks about a potential offering. Commerce Secretary Howard Lutnick said earlier this month that IPOs for the two companies are coming "sooner rather than later."
"If you're going to put them outside conservatorship and make them profit-seeking entities, then this would be a starting point," said Jason Callan, co-head of structured assets at Columbia Threadneedle. "Investors in an IPO are only going to be interested in owning shares of Fannie and Freddie if they can show earnings growth."
MBS Tailwind
Regardless of the motivation, analysts say a new source of demand in the MBS market could shift the delicate balance that determines bond prices and yields. Larger retained portfolios could push down risk premiums and dampen day-to-day volatility, altering market dynamics investors have become accustomed to.
The GSEs could also reemerge as a central force in the market. Over the past three years, attention was focused on money managers, who became the marginal buyers after the Fed scaled back MBS purchases. If Fannie and Freddie keep growing their holdings, that could change.
"If the ramp-up in the GSEs' portfolios continues, they would become one of the most important buyers in the market, and that would force investors to pay very close attention to their every move," said Mario Ichaso, a strategist at Wells Fargo & Co. "The mantra becomes, 'Don't fight the GSEs.'"
Even modest portfolio growth could revive long-running debates over how much risk the companies should take on, and whether expanding their holdings puts them on a path toward ever-larger balance sheets.
"There would be huge political concern if Fannie and Freddie began building up their portfolios back toward pre-2008 levels," said Jeana Curro, a strategist at Bank of America Corp. "Tighter underwriting has made mortgage bonds safer than they used to be but still, we expect there would need to be strict regulation if they added significantly."
Few expect a return to the pre-crisis playbook, when the companies' massive portfolios drew scrutiny for distorting markets and masking risks. But investors say today's policy backdrop makes at least some additional portfolio expansion likely.
"You've got an administration that's more focused on growth, and getting housing policy wins is paramount," said Brian Simon, a managing director at alternative credit investment firm Balbec Capital. "Buying more mortgage bonds to help drive down rates and achieve other objectives — even though we have yet to see that materialize — could be very much on the table."
