Donald Trump has announced a directive for the federal government to invest $200 billion in mortgage bonds. This initiative aims to significantly lower mortgage rates and alleviate the financial pressures of homeownership. The announcement, made on social media on March 14, 2024, aligns with the White House’s efforts to tackle rising concerns about housing affordability ahead of the upcoming midterm elections in November.
The funding for this substantial purchase is expected to be sourced from Fannie Mae and Freddie Mac, two mortgage companies currently under government conservatorship, which reportedly possess cash reserves amounting to $200 billion. Trump stated that this initiative “will drive Mortgage Rates DOWN, monthly payments DOWN, and make the cost of owning a home more affordable.”
Addressing Housing Affordability Challenges
The issue of housing affordability has been a pressing concern for many Americans, particularly as home prices have outstripped income growth due to a persistent shortage in construction. This situation has hindered first-time buyers and those looking to upgrade their homes. White House officials have yet to provide clarity on the timeline for funding these purchases.
Historically, the Federal Reserve has purchased mortgage bonds during economic downturns to help reduce interest rates. Currently, the Fed’s balance sheet contains approximately $2 trillion in mortgage-backed securities, down from $2.7 trillion in June 2022, a period marked by a four-decade high inflation rate and increased mortgage rates, which significantly raised monthly payments for homebuyers.
As of March 14, 2024, the average rate for a 30-year fixed mortgage stands at about 6.2 percent, a decrease from nearly 7 percent when Trump assumed office. A drop in interest rates can lower monthly debt servicing costs, improving affordability for a limited time until home prices adjust to the new rate environment. According to the St. Louis Federal Reserve, there was approximately $21.1 trillion in outstanding mortgage debt as of mid-2023.
During the pandemic, many homeowners capitalized on low interest rates to refinance their mortgages, often securing rates below 3 percent. Last month, Trump indicated plans to introduce housing reforms. On March 13, 2024, he expressed intentions to prohibit institutional investors from purchasing residential properties, a move aimed at further protecting individual buyers.
This latest announcement is part of a broader strategy to address the concerns of voters regarding housing affordability and could have significant implications for the real estate market as the midterm elections approach. The potential effects of this initiative will likely be closely monitored by both political analysts and the public as it unfolds.
