A coalition of real estate and banking groups, including the Community Home Lenders of America, the Independent Community Bankers of America, and the National Association of Realtors, wants Fannie Mae and Freddie Mac to buy conventional mortgage-backed securities to help the mortgage market.
In
"No," said Alex Pollock, senior fellow at the Mises Institute, who was president and CEO of the Federal Home Loan Bank of Chicago from 1991 to 2004. "The government, whether in the form of the Fed or the GSE, should not be buying MBS." Pollock notes that the Fed has lost hundreds of billions of dollars on its investment in MBS.
On its face, the idea of Fannie Mae and Freddie Mac buying back their own mortgage debt makes little sense, especially given that interest rates are falling and lending volumes are rising. Conventional 30-year fixed rate mortgages are near 6%, VA loans are well into the 5s and the industry is going to have a good quarter in Q4 and an even better 2026.
Moreover, to the key point made by advocates, mortgage spreads have come in to 1.3% vs 1.7% at the start of '25, as shown in the chart below from the St Louis Fed.
There are two significant operational constraints to the GSEs growing their balance sheets further in the near-term. The first is the Preferred Stock Purchase Agreement cap. Most Washington observers tell NMN that they don't see any way that would be lifted, but the GSEs each have about $100B in headroom. Yet there is probably enough institutional memory at Treasury to push back against any effort to significantly increase GSE portfolios.
The second more important issue is that the GSEs have not significantly reinvested in the personnel and infrastructure necessary to manage a larger balance sheet, including hedging the portfolios of MBS on a larger scale. Both of the GSEs have suffered significant attrition in recent years, thus it is an open question whether either of the enterprises could rebuild that capacity.
Moreover, given the extent of
It is interesting to note from a policy perspective that the mortgage industry has consistently been against larger GSE portfolios other than for aggregation, buyouts of delinquent loans, and perhaps some minimal incubation of smaller products.
"The potential costs from the increased liquidity risk and interest rate risk from larger portfolios likely outweigh any gain from modestly tighter spreads," notes one senior industry executive. "It's just not a good tradeoff for the industry as a whole."
Another mortgage CEO points to the massive losses sustained by the Federal Reserve Board by purchasing trillions in MBS during and after COVID.
Of course, part of the reason that some advocate having the GSEs retain mortgage loans and MBS rather than selling these assets to investors is because the Federal Reserve Board is currently a net seller. During the Fed's massive purchases of Treasury and mortgage collateral between 2020 and 2023, mortgage rates were extremely low and spreads between loans and the 10-year Treasury were well below 1%.
Even when the Fed eventually
In October 2025, Fed Chairman Jerome Powell stated that the Fed would consider ending its balance sheet runoff, including the reduction of its mortgage-backed securities holdings, in the coming months. He affirmed that the Fed would not use MBS purchases as a tool to directly target mortgage rates or housing, a policy he maintained would remain outside the Fed's mandate despite a large amount of MBS on the balance sheet.
Some of the candidates to replace Powell at the Fed have been talking about active sales of MBS to purge the Fed balance sheet of troublesome MBS. Investors continue to be wary about outright sales from the SOMA, but even if they head in that direction, sales of MBS would be designed to NOT disturb the market.
One could make an argument that the GSEs could stand ready to offset the risk of any MBS sales by a new, more conservative FOMC. Kevin Warsh, a candidate for Federal Reserve Chairman, has previously advocated for the outright sale of the Fed's MBS. This would represent a more aggressive approach to shrinking the central bank's balance sheet than current policy.
Warsh, who was a member of the Fed board during the 2008 financial crisis, supported the initial asset purchases but has since argued that the Fed should stop holding these assets now that the crisis is long past. At the current prepayment rate for MBS in the SOMA, it will take two decades to get MBS holdings below $500 billion, notes the
"The Fed has capped the pace of MBS paydowns at $35 billion a month to avoid market disruptions, while actual monthly paydowns… have been running closer to $15 billion," notes Jeff Huther. "Since the Fed views the $35 billion a month paydown pace as non-disruptive, it could use that number as a basis for sales." But Fed officials badly want to be rid of the MBS held by the central bank to end the massive operating losses caused by these low-coupon, COVID-era securities.
"If policymakers believe financial markets are so distorted in their pricing of mortgage securities that intervention is needed, MBS purchases are better suited to a federal entity such as the Fed," notes Edward DeMarco, President of the Housing Policy Council.
DeMarco was acting director of the Federal Housing Finance Agency from 2009 to 2014, where he served as the conservator for Fannie Mae and Freddie Mac. "The irony, however, is that today we are living with the consequences of the last such intervention by the Fed, which Chairman Powell acknowledged was allowed to go on for too long."
