Some of the nation's community lenders are urging the Trump administration to take steps to reduce high mortgage rates, saying they are hurting buyers and homeowners alike.
The Community Home Lenders of America and the Independent Community Bankers of America sent a letter to U.S. Treasury Secretary Scott Bessent and Federal Housing Finance Agency Director William Pulte, calling on U.S. financial regulators to allow Fannie Mae and Freddie Mac to purchase more mortgage-backed securities for a limited time.
“Action is critical to address homeownership affordability and lending challenges," the trade groups wrote in the letter.
Mortgage-backed securities are bundles of home loans that banks and lenders group and sell to investors. When you make your monthly mortgage payment, it doesn't sit in your bank; instead, your loan is often packaged with thousands of others and sold as an investment. Investors who purchase these loans receive payments as homeowners make their monthly payments. This system enables banks to recoup the capital they have lent, allowing them to make more mortgages.
The two associations argue that the gap between what you pay for a 30-year mortgage and what the government pays to borrow money (the 10-year Treasury rate) is at a historic high. This “spread” is making it harder than ever for families to afford a home.
The difference between mortgage rates and Treasury rates is about 1.4% to 1.7%, respectively. But as of Oct. 17, it’s over 2.2% or 222 basis points, according to the letter by the two community lender associations. That doesn’t sound like a lot, but on a $300,000 mortgage, it can add up for a potential homebuyer.
"This extra cost has had a significant negative effect on the ability of a family to qualify for and purchase a home, particularly for 1st-time homebuyers," the trade groups added.
For decades, the Federal Reserve, Fannie Mae and Freddie Mac have acted as buyers, purchasing bundles of home loans called mortgage-backed securities from banks and lenders, allowing for rates to stay low. But since 2022, those buyers have reduced their purchases, and there aren’t enough new buyers to fill the gap.
Government-sponsored enterprises like Fannie and Freddie are only allowed to purchase and hold a certain number of mortgage-backed securities. These limits were placed after both had loaded up on risky loans during the 2008 financial crisis, to protect taxpayers and maintain the stability of the housing market.
According to the letter, as of the second quarter of 2025, Fannie and Freddie are a combined $246 billion below their current caps, meaning they have some room to buy more mortgage-backed securities right now, but only up to a set ceiling.
The letter recommends that Fannie and Freddie be given temporary authority to purchase up to $300 billion each in mortgage-backed securities, but only when the spread between 30-year mortgage rates and 10-year Treasuries is above 170 basis points. This could reduce mortgage rates by 30 basis points or more.
In January, the FHFA and the Treasury Department announced changes to the Preferred Stock Purchase Agreements, giving Freddie and Fannie more flexibility and removing some restrictions. But the agencies didn’t explicitly say the GSEs are allowed to buy more mortgage-backed securities. January’s amendment was intended to set the stage for future changes and require public input before any big moves.
The FHFA and the Treasury Department did not respond to requests to comment.
Federal Reserve won't act to lower mortgage rates
Federal Reserve Chairman Jerome Powell said the central bank will not step in to help lower mortgage rates.
In October, speaking at the National Association for Business Economics conference in Philadelphia, Powell stated that the Fed would not resume buying mortgage-backed securities, as it had during the pandemic.
Back then, the Fed purchased trillions of dollars' worth of mortgage-backed securities to keep borrowing costs low. Those purchases helped lower mortgage rates, which triggered a buying frenzy as homeownership became more affordable.
However, Powell has now made it clear that the central bank is focused on reducing its more than $6 trillion in securities it holds on its balance sheet. Those holdings include some $2 trillion in mortgage-backed securities.
Some bond market experts from PIMCO, one of the world’s largest bond investment firms, argue that the Fed could reduce mortgage rates by 20 to 30 basis points by reinvesting the roughly $18 billion in mortgage-backed securities that mature each month.
PIMCO's investment experts say they believe the impact would be equivalent to a full percentage point cut in the Fed’s benchmark interest rate. With a more aggressive approach, the Fed could lower mortgage rates by up to 50 basis points by selling off older mortgage-backed securities each month and using the funds to purchase newly issued ones.
According to mortgage giant Freddie Mac, the 30-year, fixed-rate mortgage averaged 6.27% as of last Thursday, which is lower than the same week a year ago, when the average was 6.44%.
The Federal Reserve's next interest rate policy meeting is scheduled for Oct. 28 to 29.