The Trump administration has unveiled a proposal for Fannie Mae and Freddie Mac to purchase $200 billion in mortgage-backed securities as part of efforts to lower mortgage rates and improve housing affordability. According to analysis from industry experts, while the initiative may provide some relief by compressing spreads, it is unlikely to substantially improve home affordability. The primary driver of mortgage rates remains longer-term Treasury yields, which the proposal does not directly address.
The mortgage-backed securities purchase plan aims to reduce the interest rate spread between mortgages and Treasury bonds. However, analysts note that even a significant reduction in spreads would only lower rates by approximately 0.20 percentage points, bringing average mortgage rates to around 6 percent.
How Housing Affordability and Mortgage Rates Are Connected
Mortgage rates are predominantly determined by longer-term Treasury bond yields, particularly those in the 7- to 10-year maturity range. According to market data, when the 10-year US Treasury rate stood at 4.22 percent in January, the average mortgage rate was 6.20 percent, representing a spread of 2.02 percentage points. Regression analysis shows an 83 percent correlation between Treasury rates and mortgage rates, demonstrating the strong relationship between these two factors.
In contrast, the correlation between the fed funds rate and mortgage rates is weaker at only 66 percent. This suggests that Federal Reserve interest rate cuts alone may not be the most effective tool for improving housing affordability.
Current State of Housing Affordability Challenges
The National Association of Realtors tracks housing affordability through its Home Affordability Index, which considers mortgage rates, single-family home prices, and average family income. As of December, the index stood at 108, meaning the average family earns 108 percent of the income needed to qualify for a mortgage on an average home. However, this represents a significant decline from pre-pandemic levels, with affordability hovering near lows last seen in 2005.
One major obstacle to improving housing affordability is the limited supply of existing homes on the market. According to the Federal Housing Finance Agency, the average interest rate for outstanding mortgages is 4.4 percent as of the third quarter of 2025. Current homeowners are reluctant to sell because their existing mortgage rates are substantially lower than current market rates, creating a supply constraint that a modest rate reduction cannot overcome.
Additional Trump Administration Housing Proposals
Beyond the mortgage-backed securities purchase plan, the Trump administration has proposed several other policies designed to increase housing affordability. These include allowing homebuyers to use their 401(k) retirement accounts for down payments without early-withdrawal tax penalties, which could particularly benefit first-time buyers struggling to accumulate the traditional 20 percent down payment.
The administration has also floated the idea of 50-year mortgages to reduce monthly payment amounts. However, experts caution that lenders would likely require higher interest rates to compensate for the longer-term commitment, potentially offsetting any monthly payment savings. Additionally, borrowers would build equity more slowly compared to traditional 30-year mortgages.
Institutional Buyer Restrictions
Another proposal involves banning institutional buyers from purchasing single-family homes. According to a 2024 Government Accountability Office report, institutional buyers own only 1-2 percent of single-family homes nationally. However, in certain markets, their ownership of single-family rental units exceeds 10 percent, suggesting this policy could have localized benefits while having minimal national impact on housing affordability.
Portable Mortgage Concept
The concept of portable mortgages would allow borrowers to transfer their existing low mortgage rates to new properties. While this option appeals to current homeowners with favorable rates, lenders would likely require additional fees and impose eligibility requirements. Furthermore, this policy provides no benefit to first-time homebuyers entering the market.
Alternative Approaches to Improving Housing Affordability
Industry experts suggest several additional measures that could address housing affordability more effectively. The implementation of blockchain technology for title searches could reduce fees while increasing security and transparency in real estate transactions. Additionally, the deployment of agentic AI in mortgage underwriting could streamline the labor-intensive mortgage approval process, according to recent industry analysis.
Addressing rising home insurance premiums represents another critical factor. The US Treasury reported that homeowner insurance premiums increased at a rate 8.7 percent above inflation between 2018 and 2022. Realtor.com estimates that insurance premiums could rise another 16 percent in 2027, making this a significant component of overall homeownership costs.
Regulatory and Supply Considerations
Increasing housing supply through reduced building regulations and property taxes, particularly in regions where they are excessive, could also improve housing affordability. The National Association of Home Builders estimates that regulatory costs can add up to 25 percent to the total cost of a new single-family home, representing a substantial opportunity for cost reduction.
The effectiveness of these various housing affordability proposals will ultimately depend on their detailed implementation and whether they address the fundamental issue of Treasury yields. Market observers note that without a sustained reduction in longer-term Treasury rates, driven by lower inflation and reduced budget deficits, any improvement in housing affordability is likely to remain modest regardless of other policy interventions.
