Will a $200 Billion GSE MBS Buy Push Mortgage Rates Into the Fives? | Jan. 9, 2026

Jim Glennon (: 00:18

All right. Welcome everybody. Bonus episode of Optimal Insights. I have James here to chat with us. James is on the desk. We have been just all in a flutter about the word on truth social yesterday from president Donald Trump. You all have probably seen posts about it or you've seen articles written in the mainstream at this point. We want to be sure that we had a real quick bonus podcast to chat through what this could mean. This idea of the administration.

Essentially ordering the GSEs, Fannie Mae, Freddie Mac, to go out into the market and purchase up to $200 billion in MBS. So what does this all mean? Right? So $200 billion in MBS. There's no plan out there yet. So we're speculating at this point, but trying to kind of triangulate what this could look like for our industry, for mortgages, for mortgage rates, for borrowers out there, for anybody who's really has any interest in interest rates.

And what's happened so far? So rewind to yesterday, so Thursday afternoon, very close to the close of the market, by the way, which is interesting and somewhat disruptive. But within about 15 minutes of the bond market closing, Donald Trump essentially tweets or posts on social media this idea of $200 billion being purchased by the GSEs. Now the GSEs typically don't buy or have it since the great financial crisis have it.

purchase a ton of MBS on the open market. They used to do that as a matter of course, they would use that as a tool to manage mortgage spreads, right? The spread we talk about on this podcast, you've seen it elsewhere. The difference between treasury rates and mortgages essentially, what borrowers are paying for houses in terms of interest rate versus what like the US government pays to borrow money. But since the great financial crisis, the GSEs have been...

Not prohibited from doing that, that's not been part of their MO.

So now they get ordered to do this. What does that mean? So instantly the market starts to speculate and rates dip, MBS prices surge, right? We have what's called a rally, right James? And what do we see? Yesterday we saw kind of a mid-level rally. This morning we saw kind of ⁓ a huge, a bigger rally than we've seen in months or maybe a year or so.

James Cahill (: 02:42

Yeah, end of day yesterday, we're sending photos back and forth of it. It was like a 10 tick rally. that is enough to it's going to show up on your shock reports, right? You're definitely going to see that.

with like 15 minutes left in the day, was, you can we rehedge this? Waking up this morning, everyone knew the market's gonna keep going. It's gonna jump again. We saw another 10, 15 tick rally. It's cooled off and the spreads were like blown out. It was more than 10 this morning. I was looking at the uni 35%. So if you had held out until rolling until this morning, it was definitely a rough wake up to see. The spreads have tightened back up. I think people are kind of setting in, thinking a

little bit more about what this means. We were joking about this, like the market reacted immediately as if the administration had put Delta Force on this one instead of Fannie and Freddie, right? Like they're repelling down, they're just getting the bonds quickly. is gonna take some time, you know, we assume there's no plan that has been laid out yet. So how are these bonds gonna be bought? You know, really, really importantly, like which bonds are gonna be bought?

Jim Glennon (: 03:31

Yeah.

them. Just taking them.

James Cahill (: 03:46

Are we buying uni 30s? What about 15 years, the dwarves or jinnies, right? Jinnies are, it's a government portfolio. You'd think they'd step into it, but they traditionally have not. So what about the coupons, right? Are we going to buy fives to try and get it down? Or are we, know, Hey, there's a couple of, you know, four and a halves or sixes that are kicking out there. What, is the range that we're looking at? Or are we just going to purchase $200 billion worth all at once? that seems unlikely. That would be a.

Jim Glennon (: 04:16

Bazooka. Yeah. Yeah, that's a great point. All these different pieces of the plan have yet to come together. Yeah, the Ginny May piece was a big one because if the idea is to reduce the cost of home ownership, especially for first time home buyers, FHA, VA, like that tends to be the vehicle to do that versus conventional, which would be more for folks who maybe already own a home or have more cash on hand or looking to refinance. are a little bit more financially. ⁓

James Cahill (: 04:16

a poor strategy. Yeah.

Jim Glennon (: 04:45

mature, I suppose, or just have owned a few homes before. So we will see. I think you know, one thing that's worth noting and has been noted out there is 200 billion sounds like a lot and it is a unbelievable amount of money, but in the grand scheme of the mortgage securitization or the mortgage market, it's not like during COVID.

The Fed was buying upwards of a hundred billion dollars a day in MBS. So let that sink in, right? So this 200 billion in those terms would be like two days worth of origination, which is nothing, right? In today's terms though, it's, you know, we're about a $2 trillion industry at this point. right about 2 trillion last year. So it'd be about 10%. So call it a month's worth of originations. So that's not nothing, but it is kind of a drop in the bucket.

on its own, but a lot of folks now are wondering, is this just the beginning? Is this indication that the administration is firmly focused on this and it's starting to come up with some real ideas with some teeth in them, right? We had the 50 year mortgage thing, which is again, creative, but didn't get a great reaction. We had some other news the other day about large corporations from buying single family homes. That is again, a good idea, but.

likely not to have an immediate impact and depending on who you ask does not address a huge part of the market. But this is a big deal. This is cute. You could call this quantitative easing in a way it is. You have sort of an artificial demand that suddenly appears to buy mortgage bonds, which drives yields lower to some extent and for some period of time. Just the same as the Fed came in and bought trillions of dollars worth of MBS. It drove rates extremely low for a very long period of time.

So could this be just the beginning that start with 200 billion and then they, capitalize elsewhere buy another 200 billion or could when we have to see turnover at the fed, which we, which will definitely happen. Jerome Powell will be out in the first quarter and there will be a new head of the federal reserve. Will they then be more likely or more open to things like quantitative easing? Even if it's, even if it's not quite like what we saw during COVID, but could be more.

along the lines of what we've talked about on this podcast, which is right now, anytime a loan that the Fed currently owns pays off, they allow that loan to fall off their books. Could they tighten up a little bit there? they eliminate the tightening that they're doing in the MBS space? That would be something relatively easy for them to do mathematically, just to say we're going to keep our portfolio or maintain our portfolio of MBS versus let it run off every month to the tune of 18 to 20 billion.

James Cahill (: 07:33

and

ike, hey, looking back to pre: 2008

⁓ hundreds of billions of dollars being spent to do that, to keep interest rates low. The government has been, they've backed off, right? Quantitative, was it tightening? And then we've stopped buying them. This is letting the hose back open, right? To purchase it. is, know, $200 billion is only gonna stretch so far as crazy as that is. only gonna go so far.

Will the government be open to more? You know, we talked earlier this year, there needs, there kind of needs to be a bar for MBS in order to keep MBS flowing, to get the money back to the banks so they can give more mortgages, so they can keep rates low, right? Like that, that is the game plan. That's the system. It does make sense. And there's a lot of analysts who are predicting like this could be, you know, 25 basis points, which would be great. You know, that's, you know, 120 bucks a person. If you're a first time home buyer that really, you know, 12, $1,300

a year that could matter a lot. But you finally it's the conversation of we've been talking about will they let the GSEs go out of conservatorship and now here is you know well here's the benefit of having them they make a lot of money and you could potentially use that to put it back into the market and use them as a branch of the government. So it's a it's an interesting step.

and not expected. And finally, we've been talking about it is good that ideas are coming, right? The 50 year mortgage wasn't quite the hit, but the administration is making decisive action trying to get affordability under control and help borrowers. This is, you know, how far it will stretch is the question, but this is a big first step that makes sense to a lot of people.

Jim Glennon (: 09:22

Yes.

Agreed. It is the bazooka that maybe we were waiting for. You you got to love the fact that nothing is off the table with this administration. And this has hopefully been some indication that there's some change of focus, like you said, from focusing on maybe tightening up treasury yields to tightening up mortgage spreads. And if it's just the beginning of that and that's going to be the trend, you know, it can be a quarter point now. It could be, you know, if they get creative on G fees and LLPAs like we've talked about.

previous months, that could be another eighth, maybe another 20 basis points you start getting. You know, I think we'll probably, unless rates spike for some other reason, we could see a five handle on the OVMMI here in the very near future, which would open up a lot of origination opportunities for home buyers, but also for refinances. So good for the industry, hopefully good for housing as well. So how do we sum this up, James? mean, right now we don't know much at all.

We know 200 billion, we know the focus is still on affordability. Hopefully the administration kind of focuses on that for a while. That's the thing. Meanwhile, some of the geopolitical stuff will play itself out. But this is just the first step. Don't expect rates to be a hundred basis points lower in the next few weeks by any means. But keep an eye on this kind of saga. We'll continue talking about it on the cast. But for today, we're getting this sort of speculative move. This has not happened yet. Like you said, Delta Force didn't come in and just start buying.

James Cahill (: 10:47

Yeah

Jim Glennon (: 11:06

MBS are just snagging them from banks. This is just a speculation that it is going to happen. There will be a plan that comes out hopefully with some sort of urgency and some sort of strategy to make this happen over a general period of time in the right coupons, as you said, so that we get the best bang for that buck, so to speak, for that 200 billion to soften up this market to the point where we can get to see rates in the fives for a while.

James Cahill (: 11:37

that's an excellent summer and it it's definitely been a week with a lot of mortgage news going on. Non-farm payroll came out today so we'll have a lot more to discuss on Monday. It's plenty to study this weekend.

Jim Glennon (: 11:49

Yes, all good things for mortgages so far. stay tuned. All right. Thank you, James. Thanks for the quick bonus podcast and we'll talk again here on Monday. Have a good one.

James Cahill (: 11:59

Thank you, Jim.