Fannie
Mae
and

Freddie
Mac
added
a
combined
$12.5
billion
in
agency

mortgage-backed
securities
(MBS)
to
their
retained
portfolios
in
January,
a
volume
that

BTIG
analyst
Eric
Hagen
described
as
“lower
than
expected”
but
still
effective
in
helping
to
drive
down

mortgage
rates.

During
a
Jan.
21
speech
at
the
World
Economic
Forum
in

Davos,
President
Donald
Trump
said
he
had
directed
the
government-sponsored
enterprises
(GSEs)
to
purchase
up
to
$200
billion
in
MBS.
He
had
previously
disclosed
the
directive
in
a
Jan.
8

social
media
post.

In
January,
Fannie
Mae
purchased
$8.5
billion
in
agency
MBS,
compared
to
$4
billion
by
Freddie
Mac. 

“Mortgage
rates
were
6.20%
before
the
announcement,
versus
5.95%
currently,
which
we
attribute
roughly
to:
15
bps
of
lower
benchmark
10-year
Treasury
rates,
5-10
bps
of
tighter
MBS
spreads
in
the
secondary
market,
and
slightly
lower/tighter
profit
margins
for
lenders,”
Hagen
wrote
in
a
report.

Spreads
between
agency
MBS
and
Treasury
notes
are
now
about
105
basis
points,
compared
to
115
bps
prior
to
the
purchase
announcement
and
roughly
140
bps
at
the
end
of
last
summer.
Hagen
does
not
expect
spreads
to
tighten
to
the
75-bps
levels
seen
at
the
end
of
2021
but
said
further
compression
is
possible
if
the
yield
curve
steepens.

Comfortable
headroom

Under
their
senior

preferred
stock
purchase
agreements,
each
GSE
can
hold
up
to
$225
billion
in
mortgage-related
assets.
That
compares
to
current
portfolio
balances
of
$143.5
billion
for
Fannie
and
$158.7
billion
for
Freddie.

The
remaining
headroom
could
prove
supportive
during
a

refinance
wave,
when
mortgage
rates
tend
to
lag
declines
in
benchmark
rates
as
secondary
market
investors
price
in
prepayment
risk.

“Assuming
the
GSEs
have
‘ample’
room
to
add
assets
to
their
portfolios,
and
the
policy
objective
remains
geared
around
supporting
mortgage
rates,
we’d
be
surprised
if
the
GSEs
tolerated
current
coupon
spreads
breaching
the
130-140
bps
level,”
Hagen
added.

BTIG’s
base-case
scenario
calls
for
roughly
$5
billion
to
$8
billion
in
net
new
MBS
purchases
per
month
for
each
GSE
over
the
next
nine
to
12
months.

Ending
conservatorship

In
equity
markets,
however,
valuations
for
the
GSEs
have
fallen
about
40%
since
the
MBS
directive
was
announced,
as
investors
grow
less
confident
in
the
prospects
for
a
near-term
release
from

conservatorship.

Instead,
Hagen
said,
markets
increasingly
believe
Trump
may
seek
greater
control
over
mortgage
rates,
potentially
weighing
on

earnings
and
dampening
the
appeal
of
the
stocks
in
a
relisting
scenario.

That
sentiment
contrasts
with
the
optimism
that
followed
Trump’s
return
to
office
and
his
appointments
of

Scott
Bessent
as
Treasury
secretary
and

Bill
Pulte
as
director
of
the

Federal
Housing
Finance
Agency
(FHFA).
Shares
of
the
GSEs
climbed
to
a
52-week
high
of
$14
in
September.

“The
recent
SCOTUS
ruling
to

strike
down
tariffs
frames
the
limits
to
the
President’s
unilateral
powers,
which
admittedly
trims
some
of
our
own
optimism
that
a
release
from
conservatorship
can
be
accomplished
seamlessly,”
Hagen
said.