Fannie Mae and Freddie Mac have quietly added billions of dollars of home loans and mortgage-backed securities to their portfolios in recent months — a move that’s already influencing mortgage rates.
The government-backed housing giants purchase mortgages from lenders. They either hold these loans in their portfolios or package them into mortgage-backed securities and sell the bundles to investors.
In the five months through October, both Fannie and Freddie have boosted the size of their retained portfolios — the share of mortgages and bonds they keep instead of selling — by more than 25%, reaching a combined $234 billion, marking the highest total since 2021, according to October’s monthly volume figures.
By holding onto more loans, it limits the supply for sale and increases demand in the market for mortgages and mortgage-backed securities. Higher demand typically means investors are willing to accept lower returns, which means lower interest rates for borrowers.
“Ultimately, when there's demand for mortgages, whether it's in loan form or securitization form, that's going to result in lower rates, and when that demand is really strong, that's going to really move the needle on rates,” Jeana Curro, head of agency mortgage-backed securities research at Bank of America, told Homes.com in an interview.
The Trump administration hasn’t shared many details about why Fannie Mae and Freddie Mac are holding onto more home loans and mortgage bonds; however, they have repeatedly stated their intention to leverage the financial strength of government-backed entities to help lower housing costs. Policymakers have been at work to return the companies to public markets after nearly 20 years under conservatorship and building up their portfolios could make them more profitable and attractive to future investors.
Treasury Secretary Scott Bessent on Tuesday said the administration is working "very deliberately" toward reaching the goal of returning the entities to public markets.
When asked for comment, Fannie Mae declined and Freddie Mac did not respond. The Federal Housing Finance Agency (FHFA), which oversees both companies, offered this statement to Homes.com: “Under [former president] Joe Biden and [Federal Reserve Chairman] Jerome Powell, the average payment on a new mortgage went up by $1,000 a month. We are actively studying a wide variety of options to reverse the damage they did to the mortgage market and restore the American dream of affordable homeownership.”
The Federal Housing Finance Agency’s sharp criticism of current policy underscores how high the stakes are for homebuyers and the broader housing market. Even as officials debate the best path forward, the specifics of Fannie Mae and Freddie Mac investment strategy remain unclear, fueling speculation about their agenda.
“Some people speculate its policy motives,” Curro said. “It could also be to just boost their profitability and make them look like two more profitable entities,” or perhaps to help bring down mortgage rates for buyers.
But, she added, “I’ll be honest, we are just privy to these monthly data reporting, and they don’t give us any transparency as to like what exactly they’re buying beyond whether it’s bonds or loans. Maybe over time that will become more clear. They haven’t really shared anything on their strategy either.”
Lower mortgage rates
Homebuyers are starting to feel the difference.
Mortgage rates have been on a gradual decline this year. At the beginning of 2025, the average rate on the 30-year fixed rate mortgage was 7.04%, according to Freddie Mac. After mid-October, rates started to decline sharply, with the average 30-year fixed rate dropping 57 basis points from its peak in April.
According to Bank of America, this notable drop in rates coincided with Fannie and Freddie expanding their mortgage holdings. That helped narrow the spread between mortgage-backed securities and treasuries by about 40 basis points from its peak in April to November.
Remember when the spread is wide, it means investors want a bigger reward for mortgage bonds instead of government bonds. Inversely, when the spread narrows, it means there's more demand for mortgage bonds, influencing mortgages rates to trend downward.
“I recall mid-October when we had their [report] and it showed some pretty decent buying," Curro said. "That’s when we did see some secondary market activity that resulted in lower mortgage-backed security yields and then lower rates."
This kind of market influence isn’t new for Fannie and Freddie. Back in 2008, their holdings swelled to more than $1.5 trillion of mortgages and bonds, including many risky ones. When the housing market collapsed, those risky investments led to huge losses and forced both entities into government control. In response to the crisis, the government limited how much both entities could hold in their investment portfolios, which are set at $225 billion each.
Data from Bank of America shows that Fannie Mae’s portfolio is $98.7 billion, and Freddie Mac’s is $116.4 billion, both well below their respective caps, giving them significant room to add more mortgage-backed securities if they’re allowed to do so.
The Federal Housing Finance Agency raised the limit on how much Freddie Mac can invest in home loans during the third quarter, allowing the entity to buy up to $40 billion worth of single-family mortgages.
“We expect the GSEs [government-sponsored enterprises] to continue adding this year for a total of $10 billion in 2025 and could see that number triple to $30 billion in 2026," Curro said. "This size would both represent ample demand and thus be welcomed by the market but still keep the GSEs [government-sponsored enterprises] portfolios well below their limits."
Other Wall Street firms “think they could add about $100 billion and I would think if they add $100 billion that would be pretty meaningful, like you could potentially get to 5% [mortgage rates],” Curro said.
Still, there remains concerns around risks of letting both entities “balloon their portfolios” again or face financial trouble — that could be less likely given today’s rules are stricter and the loans are higher quality due to dramatic underwriting changes, Curro explained.