United States President Donald Trump on 9 January declared that he is giving special attention to the housing market and has directed his “representatives” to purchase $200 billion worth mortgage bonds to reduce mortgage rates and monthly payments.
According to a Bloomberg report, the purchase will likely be executed by the Federal Housing Finance Agency (FHFA). The agency’s director Bill Pulte said the purchases will be made soon, it added.
Pulte told Bloomberg the bond purchases “can be executed very quickly. We have the capability, we have the cash to do it, and we are going to go about executing it very smartly and in a very big way”, the Bloomberg report added.
A Reuters report added that he refused to provide a timeline for the same but said they are “very serious” about executing the directive.
The Reuters report added that the White House did not immediately respond to queries on Trump’s statement.
What has Donald Trump said?
In a post on his social media platforms Truth Social, Donald Trump wrote: “Biden ignored the Housing Market, and instead was immersed with High Crime, Open Borders, runaway INFLATION, the Afghanistan Disaster, and a Military that he left in Chaos and Confusion. Everything was broken, but I, as President of the United States, have already fixed it!”
“Now, I am giving special attention to the Housing Market. Because I chose not to sell Fannie Mae and Freddie Mac in my First Term, a truly great decision, and against the advice of the “experts,” it is now worth many times that amount — AN ABSOLUTE FORTUNE — and has $200 BILLION DOLLARS IN CASH. Because of this, I am instructing my Representatives to BUY $200 BILLION DOLLARS IN MORTGAGE BONDS,” he said.
Trump claimed, “This will drive Mortgage Rates DOWN, monthly payments DOWN, and make the cost of owning a home more affordable. It is one of my many steps in restoring Affordability, something that the Biden Administration absolutely destroyed. We are bringing back the AMERICAN DREAM that was destroyed by the last Administration. MAKE AMERICA GREAT AGAIN!”
Donald Trump eyeing brownie points ahead of mid-term elections?
Notably, this move comes months ahead of the US November midterm election.
Earlier, on 8 January, Donald Trump said he would move to ban institutional investors from buying single-family homes.
The Bloomberg report added that his advisers have repeatedly noted that the Republicans could suffer heavy impact and lose majority control in Congress if they fail to make good numbers in the fall elections.
Will Trump’s order help make housing prices more affordable?
The Bloomberg report added that both federal housing finance companies Fannie Mae and Freddie Mac have over the past months added “billions of dollars” of mortgage-backed securities and home loans to their balance sheets.
The purchases have been viewed as a way to push down lending rates and boost their profitability ahead of a potential public offering (IPO). It added that portfolio data showed both companies’ bonds and loans have increased over 25% between June to October last year.
Overall, the move is tried and tested, during and after the COVID-19 pandemic, the US Federal Reserve (US Fed) undertook a similar exercise. However, this $200 billion is expected to have much “smaller impact” compared to Fed’s large purchases, the Reuters report added citing Redfin’s head of economics research, Chen Zhao.
Zhao said this could bring down borrowing costs by 10 to 15 basis points (bps).
Do Fannie May and Freddy Mac have the cash Donald Trump claims?
Notably, Reuters reported that while Donald Trump claimed both companies have $200 billion in cash, third quarter earnings with the US Securities and Exchange Commission (US SEC) showed this was less than $17 billion as of September 30.
Pulte told Reuters on phone that the two agencies had “ample liquidity”, including nearly $100 billion in available funds at each entity.
- Freddy Mac’s documents showed till September it held $4.6 billion in “cash and cash equivalents” and $86.3 billion in “securities purchased under agreements to resell” for a total of $90.9 billion, as per Reuters.
- Fannie May’s documents showed till September it held $12.2 billion in “cash”, $27.2 billion in “restricted cash” and $61.5 billion in “securities purchased under agreements to resell” for a total of $100.9 billion, as per Reuters.
(With inputs from Bloomberg and Reuters)