Fannie Mae Ramps Up Mortgage Security Purchases Amid Market Volatility

Fannie Mae accelerates mortgage-backed securities purchases, driven by a Trump-era directive and Middle East turmoil, to stabilize markets and reverse portfolio decline.

A sharp increase in acquisitions of mortgage-backed securities (MBS) by Fannie Mae is providing a counterweight to turbulence in U.S. housing finance markets, which have been rattled by the ongoing Middle East conflict. The government-sponsored enterprise has significantly accelerated its buying program as widening spreads and interest rate fluctuations, driven by rising oil prices, create new opportunities.

A Presidential Directive Sets the Stage

The current expansion traces back to an executive mandate issued by President Donald Trump two months ago. The directive ordered both Fannie Mae and Freddie Mac to purchase $200 billion in mortgage-backed securities. The stated objective was to lower mortgage rates and improve housing affordability.

Initially, the announcement had the intended effect, compressing risk premiums—or spreads—on newly issued MBS relative to U.S. Treasury bonds by approximately 0.2 percentage points. However, purchases by the two entities remained subdued in subsequent weeks. With risk premiums already tight, there was limited scope for the buying to exert further meaningful downward pressure on home loan rates.

The escalation of tensions in the Middle East has shifted the calculus. Higher Treasury yields and now-widened MBS spreads have made these securities more attractive again. Fannie and Freddie are strategically using the market sell-off to grow their retained investment portfolios.

Reversing a Long Portfolio Decline

Both companies have operated under federal conservatorship since 2008. Their combined portfolios, which once totaled $1.5 trillion, had contracted to just $158 billion by the end of 2022. That trend has reversed since mid-2024, with holdings now projected to climb to $278 billion by January 2026.

The accelerated purchasing activity is helping to partially stabilize the MBS market. On Monday, yields retreated and MBS spreads narrowed modestly after Iran rejected statements from President Trump regarding negotiations to end hostilities.

Economic Forecast Faces Geopolitical Risk

This new volatility places existing forecasts under pressure. Fannie Mae's own research division, in its March housing market report, had projected a gradual decline in mortgage rates: 5.9% in Q2 2026, followed by 5.8% in Q3 and 5.7% in Q4. This outlook was predicated on an expected economic cooling that would typically push interest rates lower.

The recent geopolitical shock now threatens that trajectory. Whether the accelerated MBS purchases can meaningfully contain the spread widening will depend heavily on the future path of the Middle East conflict and associated energy price volatility—factors over which Washington has limited control.