Mortgage Bonds Explained: What Trump’s Latest Proclamation Means for Homeowners

In a move aimed to “make the cost of owning a home more affordable,” President Donald Trump announced on social media that he is directing the federal government to purchase $200 billion in mortgage bonds, using cash reserves held by Fannie Mae and Freddie Mac. 

Homebuyers and homeowners are craving any action that may lead to lower mortgage rates from their lenders, but experts are split on whether this intervention will deliver meaningful, long-term relief.

Jake Krimmel, senior economist at Realtor.com®, warns that a "one-time infusion of $200 billion—or a series of smaller purchases that add up to it—are not likely to change the mortgage market's long-term pricing." 

Others note that the move has obvious and recent historic precedent.

“If you look at all the factors that made rates incredibly low from 2020 through 2022, a large influencer was that the Fed was buying mortgage-backed securities,” says Jennifer Beeston, executive vice president of national sales at Rate.com. “When lenders know there’s an end buyer lined up, they can offer lower mortgage rates.”

To understand whether this policy could actually make an impact, it helps to understand how mortgage bonds work and why they matter to homeowners.

What is a mortgage bond?

A mortgage bond, more formally known as a mortgage-backed security (MBS), is a type of investment that packages together many home loans and sells them to investors. 

When you take out a mortgage from a bank or lender, that loan is often sold to government-sponsored enterprises like Fannie Mae or Freddie Mac, which bundle these loans together and sell them as securities to investors. This is Fannie and Freddie's core business, and it's how they keep money flowing through the mortgage market and make homeownership accessible to millions of Americans.

Trump is proposing that, instead of buying individual mortgages to package and sell, Fannie and Freddie will purchase mortgage-backed securities that already exist and are trading in the secondary market.

This is similar to what the Federal Reserve does during economic crises to support the housing market. It's also reminiscent of what got Fannie and Freddie in trouble before the 2008 financial crisis.

Back then, the two firms bought mortgage-backed securities and risky subprime loans as investments for their own portfolios. When the housing market collapsed and defaults surged, those investments turned toxic, forcing the federal government to bail out Fannie and Freddie and place them under conservatorship.

Trump's directive would use the $200 billion in cash reserves that Fannie and Freddie have accumulated since the bailout to purchase MBS in an effort to stimulate the market. The Federal Reserve holds approximately $2 trillion in mortgage-backed securities, following its own COVID-19 pandemic-era intervention.

How do bond prices affect mortgage rates?

The connection between mortgage bond prices and mortgage rates comes down to supply and demand. When there's strong demand for mortgage-backed securities, the prices of those securities go up. When prices go up, the yields that investors earn go down. And because mortgage rates are closely tied to MBS yields, lower yields translate into lower mortgage rates for borrowers.

This is where government intervention can theoretically have an impact. When the government commits to purchasing large quantities of mortgage bonds, it creates guaranteed demand.

However, the scale and duration of purchases matter enormously. The Federal Reserve's pandemic-era intervention involved trillions of dollars in purchases sustained over many months, creating a credible signal to markets. Trump's proposed $200 billion purchase, though it sounds substantial, may be too small and uncertain in its execution to move markets in a meaningful way.

"This could bring rates down in the short run by a small amount, but to really move mortgage markets, you would need large, sustained, and credible asset purchases," Krimmel says. 

Another concern is inflation, which plays a critical role in mortgage rates.

“Policies that blur the lines between fiscal action and monetary policy risk unsettling investors, which can push inflation expectations higher. This is the opposite of what’s needed to bring mortgage rates down in a sustainable way,” says Joel Berner, senior economist at Realtor.com.

How to buy mortgage-backed securities

For individual investors interested in mortgage-backed securities, the most practical approach is purchasing an MBS-focused mutual fund or exchange-traded fund (ETF). These funds pool money from many investors to buy diversified portfolios of mortgage bonds, providing exposure to the asset class without requiring the large capital outlays or specialized knowledge needed to buy individual securities.

Investors can also purchase Ginnie Mae bonds directly, which are backed by the full faith and credit of the U.S. government and offer slightly higher yields than Treasury bonds. These typically require minimum investments of $25,000 and are sold through bond dealers.

Note that mortgage-backed securities carry unique risks compared to other fixed-income investments. The primary risk is prepayment: When homeowners refinance or pay off their mortgages early, investors receive their principal back sooner than expected—often when interest rates are low and reinvestment opportunities are less attractive.

Most trading in mortgage-backed securities, however, happens at the institutional level. Pension funds, insurance companies, mutual funds, foreign central banks, and the Federal Reserve are the primary buyers of MBS. Trump's proposed $200 billion purchase would place Fannie and Freddie alongside these institutional buyers in the secondary market.

Using a mortgage calculator to understand bond impact

Even small changes in mortgage rates can have a significant impact on your monthly payment and the total cost of homeownership over time. A mortgage calculator can help you understand exactly how much you'd save if Trump's bond purchases, and other actions and factors, do manage to nudge rates lower.

For example, on a $400,000 30-year fixed mortgage at the rate of 6.16%, your monthly principal and interest payment would be approximately $2,430. If rates fell to 5.75%, the monthly payment would drop to $2,334, saving you $96 per month compared to 6.16%—which adds up to $34,560 over the life of the loan.

Homeowners with existing mortgages should monitor rate movements and consider refinancing if rates do drop meaningfully below their current rate, keeping in mind that refinancing comes with closing costs that typically range from 2% to 5% of the loan amount.

What to know right now about mortgage bonds

Trump's directive to purchase $200 billion in mortgage bonds signals a new focus on housing affordability, but it’s unclear whether this intervention will deliver meaningful or lasting relief to homebuyers and homeowners. As Berner notes, it is only one piece of a very complex puzzle.

“As with other housing policy ideas focused on demand, the larger issue is that the market’s core challenge remains on the supply side. If this move is perceived as a one-off rather than a sustained effort to lower borrowing costs, it is unlikely to change builder behavior or materially increase housing production,” says Berner. 

Sustainable progress depends on adding homes through new construction and expanded inventory in chronically constrained markets, rather than short-term interventions that primarily shift demand. In the meantime, prospective buyers and homeowners can use mortgage calculators to understand how even small rate changes might affect their payments—and stay alert for opportunities to lock in lower rates if they materialize.