When President Donald Trump announced in early January that Fannie Mae and Freddie Mac had been directed to purchase up to $200 billion in agency mortgage-backed securities (MBS), mortgage spreads immediately tightened 10 to 15 basis points.

The following day, average rates for 30-year fixed-rate mortgages briefly dipped below 6% for the first time since 2022, expanding the pool of refinance candidates to 4.8 million essentially overnight. That 20% increase left refinance-eligible borrowers with roughly $1.7 billion in approximate monthly savings, according to ICE Mortgage Technology, a subsidiary of Intercontinental Exchange Inc. (ICE), owner of the New York Stock Exchange.

But with the proposed mortgage rate subsidies already priced into market rates, and the Federal Housing Finance Agency (FHFA) that regulates the government-sponsored enterprises (GSEs) yet to formally outline how the $200 billion in agency MBS purchases will be executed, the market has been left in a holding pattern, trading on the news.

“Maybe as we get more additional details from the administration we might get some more impact there,” says Mike Vough, senior vice president of corporate strategy at market intelligence platform Optimal Blue, “but it seems like some of that change has been a little fleeting since the announcement.”

Because not all of the 10 to 15 basis points in secondary spread tightening gets passed through to borrowers, only roughly one-eighth of a percent (0.125%) of an improvement in market rates followed the announcement six weeks ago, says Vough. Since then, spreads have reset wider as macroeconomic and geopolitical volatility have heightened in February.

Short-term rate improvements

Vough ran Optimal Blue’s mortgage hedging and trading teams for four years before landing the business development role he occupies now. While the immediate drop in rates boosted January lock volumes by 36% compared to a year ago, the rise was fueled by nearly four times growth in refinance activity as annual purchase locks actually declined, Optimal Blue’s data shows.

Billed as a move to improve housing affordability, Fannie and Freddie purchasing $200 billion in agency MBS raises the question of whom the “fleeting” affordability gains will primarily benefit: sidelined refinance demand or sidelined purchase demand.

“If the administration is trying to provide affordability to borrowers, this is a way of doing of doing that,” says Vough. “But it’s not enough to provide probably a material change in rates unless they really ratchet it up in terms of the size of MBS that they wanted to buy.”

Similar circumspection was relayed to Scotsman Guide by the Mortgage Bankers Association (MBA) in commentary from recent forecasts shared by the association’s chief and deputy chief economists, Mike Fratantoni and Joel Kan. They underscore what other housing economists’ have also cited as longer-term trade-offs of an active backup bid from Fannie and Freddie.

The pair wrote in January that the initial reaction to the MBS purchase proposal “may overstate the longer-run impact” concerning MBS purchases, noting “considerable uncertainty” exists in the absence of any details on the distribution, timing and hedging strategies behind the proposed purchases. The FHFA did not return a request for comment.

“Surveying a range of market estimates, our view is that spreads might wind up by about 10 basis points tighter than they otherwise would due to these purchases,” said Fratantoni and Kan. An updated February forecast underscored the retreat in secondary spreads since the announcement six weeks ago as industry participants await guidance.

The MBA economists added, “The spread widened from the initial announcement that the GSEs would increase their purchases of MBS, as no further information around the size, pace, hedging, and financing strategies of these purchases was announced.”

The Community Home Lenders of America, which represents mostly small and midsize mortgage lenders, has been a strong proponent of MBS purchases by Fannie and Freddie, jointly writing a letter with another trade association to FHFA Director Bill Pulte and U.S. Treasury Secretary Scott Bessent last October.

“Specifically, we seek actions to reduce the historically wide spread between 30-year mortgage rates and 10-year Treasuries (30/10 spread), which could reduce mortgage rates by 30 basis points or more,” the letter read. “We believe the regulators must address the secular and structural decline in demand for mortgage-backed securities.”

When the Federal Reserve ended quantitative easing (QE) in mid-2022, the U.S. central bank stopped buying agency MBS as it had through the COVID-19 pandemic to support housing liquidity and stabilize the broader economy. As the supply of MBS increased absent the government demand, prices dropped, yields rose and secondary spreads widened.

But spreads started to narrow again in the second half of 2025 when Fannie and Freddie began quietly growing their retained mortgage portfolios with MBS purchases, falling to around 200 basis points at the start of the year and dipping to the low- or mid-180s after the announcement. They returned to the 190 to 200 range in the six weeks since.

“It definitely helped tighten, bring rates down a little bit, but it didn’t have the lasting impact that it would have had if it was coming from the Fed stepping in and doing another QE,” says Andrew Rhodes, head of trading at Mortgage Capital Trading, a capital markets advisory firm.

He noted that since the pandemic and the introduction of QE more broadly occurred, an era of wider spreads has persisted.

“The whole home affordability aspect of it, I don’t think it gets cracked with this $200 billion in purchases,” says Rhodes. “I think it does help bring rates down. I think it does help people that own houses refinance and get a better rate, lower their payment have more money to invest, to consume, to save, whatever they want to do.”

But the manner in which MBS purchases may disproportionately favor refinance borrowers over purchase borrowers risks worsening affordability, adds Rhodes, whose primary affordability concern is home prices, not mortgage rates.

“It’s kind of a double-edged sword, truthfully,” he says. “I think you want to spur refinances, however. By doing that you’re also kind of continuing to prop up property values and the affordability crisis is not getting any better.”

An era of volatility

Since December, heightened volatility has been the primary driver of widening spreads in spite of the MBS purchase proposal, says Andy Walden, head of mortgage and housing market research at ICE.

“The mortgage market doesn’t like volatility or uncertainty because it doesn’t allow them to price in that prepayment risk out there in the market,” he says. “So anytime there’s more uncertainty or more expected volatility in rates, you tend to see spreads widen.”

As eggs keep getting added to the basket of economic risks bond holders must price into their offerings — from inflation, tariffs and widening federal deficits to attacks on Fed independence, weak job creation and U.S. dollar flight — yields on 10-year U.S. Treasury bonds to which MBS spreads are benchmarked have grown ultrasensitive, increasing overall uncertainty for mortgage lenders facing unpredictable rate conditions.

Despite limited potential for a rate hike in the near term, that narrative crept into formal discussions at the most recent Federal Open Market Committee meeting in late January — pushing the rest of the market to consider that outcome while inflation remains well above the Fed’s stated 2% target.

From a three-month low of 3.99% at Thanksgiving, 10-year Treasury yields climbed steadily to 4.27% in the first week of February. On Tuesday, they had eased to 4.03%, having barely registered Friday’s historic Supreme Court ruling striking down a majority of President Donald Trump’s global tariffs. Those tariffs, first implemented in April of last year, were almost entirely paid by U.S. firms and consumers, numerous studies show, worsening inflation.

“There wasn’t a whole lot of reaction last Friday to the news, a handful of basis-point movements here and there,” says Walden, who noted that 10-year yields had fallen about four basis points from Friday through Tuesday morning. Correspondingly, he said there was “a little bit lower rates in response to the tariff conversations over the last 24 hours or so.”

While the Supreme Court may have cracked Trump’s signature economic egg, in the basket of risks impacting 10-year Treasury yields it’s only one — and it’s only cracked, not broken. Tariff revenue is consistently cited by the administration as a force for shrinking the federal deficit, the expansion of which has rattled investors around the world.

Trump quickly substituted a 10% tariff on every country through an executive order and various short-term authorities that ultimately lead to Congress. He has subsequently expressed a desire to raise that rate to 15%, with all scenarios likely to be challenged in court.

What this means for mortgage lenders, broadly, is more uncertainty that drives potential widening of secondary spreads, offsetting limited affordability gains made through Fannie and Freddie’s MBS purchases. And for borrowers, housing economists still broadly forecast average rates for 30-year fixed-rate mortgages at around 6% through the rest of 2026.

Though secondary spreads have crept back up to 200 basis points in recent days, trading prices for mortgage rate futures reflect expected easing over the next six months. “Trading on the news” is thus simply a knock-on effect of the $200 billion MBS purchase proposal, for which six weeks later no details on execution have been disclosed.

“From the 200 billion in MBS, I think a lot of that’s already been felt and priced in and is already sitting there. You just may not realize it’s sitting there for lack of a better word,” says Walden.

“But when you look at futures data and where traders are pricing 30-year mortgage rate futures,” he adds, “it’s showing that the market is currently anticipating another eighth-percent improvement over the next six months. So even though it’s not expected to come directly from that $200 billion in MBS, there still is a broad expectation and kind of this pricing in.”