Mortgage Rates Declined After MBS Purchases Initiated

The FHFA and GSEs executed a program to reduce borrowing costs for prospective homeowners.

Updated on Sept. 18, 2026 in Residential

Mortgage Rates Declined After MBS Purchases Initiated

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Following a directive from the President of the United States on January 8, 2026, Fannie Mae and Freddie Mac began purchasing mortgage-backed securities. This initiative aimed to lower borrowing costs, contributing to a decline in mortgage rates to 5.95 percent by the end of January.

Why it matters

The program was designed to replace bond runoff from the Federal Reserve balance sheet and provide downward pressure on interest rates. Projections indicated that this strategy could shave 10 to 25 basis points off 30-year mortgage rates.

The FHFA authorized Fannie Mae and Freddie Mac to hold up to 225 billion dollars in mortgage bonds each. By January 31, 2026, the entities had added 12.5 billion dollars to their portfolios toward a 200 billion dollar target.

The players

President of the United States

The current President of the United States serves as the head of the executive branch and oversees federal agency policies.

Federal Housing Finance Agency

The Federal Housing Finance Agency acts as the primary regulator for government-sponsored enterprises in the housing market.

Fannie Mae

Fannie Mae is a government-sponsored enterprise that supports the secondary mortgage market by purchasing home loans.

Freddie Mac

Freddie Mac is a government-sponsored enterprise that provides liquidity and stability to the U.S. housing finance system.

The details

Government-sponsored enterprises utilized existing liquidity to fund these purchases, which served as a counterbalance to the 15 billion dollars in bonds rolling off the Federal Reserve balance sheet monthly. This action followed a 2024 period where mortgage rates had climbed to nearly 8 percent.

In 2022, GSE portfolios reached a combined total of 158 billion dollars.
During 2024, mortgage rates reached a peak of nearly 8 percent.
On January 8, 2026, the President of the United States directed the purchase program to begin.
In January 2026, the FHFA authorized increased MBS holding limits for Fannie Mae and Freddie Mac.
By January 31, 2026, the GSEs had added 12.5 billion dollars in securities to their portfolios.

Culture Shift

This purchasing initiative mirrors historical efforts by government entities to stabilize lending markets when conventional balance sheet reductions tighten liquidity. By stepping in to fill the void left by the Federal Reserve, the FHFA signaled a departure from strictly passive market observation.

Prospective homebuyers and current owners refinancing loans may benefit from the lower 5.95 percent mortgage rates resulting from increased market liquidity. These changes directly reduce monthly housing payments compared to the higher interest environment seen in 2024.

The takeaway

Large-scale government intervention in the secondary mortgage market serves as a primary lever to influence consumer borrowing costs during periods of volatility. Homebuyers should monitor announcements from the FHFA as they indicate potential shifts in the cost of long-term residential debt.