Fannie Mae and Freddie Mac could be aiming to tamp down lending rates and increase profits ahead of possible public offering, after media reports that they have added billions of dollars of mortgage-backed securities to their balance sheets.
According to a report in Seeking Alpha, the government-sponsored enterprises, have boosted their retained portfolios by more than 25% in the five-month period through October. The boost lifted their combined positions to $234 billion, the highest since 2021. Bloomberg New reported that analysts say their portfolios could add as much as $100 billion more next year.
Mortgage giants Fannie Mae (FNMA) and Freddie Mac (FMCC) have added billions of dollars of mortgage-backed securities (MBS) to their balance sheets, leading some to surmise that they’re aiming to tamp down lending rates and increase profitability ahead of a potential public offering, according to media reports.
$100B More Possible Next Year
The government-sponsored enterprises have increased their retained portfolios by more than 25% in five months through October, bringing their combined positions to $234B, the most since 2021. Furthermore, analysts say they could add as much as $100 billion more next year, Bloomberg News reported.
While administration officials have not commented on the MBS purchases, they often have said they would use Fannie and Freddie’s financial strength to lower housing costs.
And, they have been preparing to shift the GSEs back to public markets almost 20 years after they were put into conservatorship.
The two housing GSEs don’t directly originate mortgages. They acquire mortgages and repackage them into securities that they guarantee and resell to the financial markets to provide liquidity to the housing finance system.
Seeking Alpha said as the GSEs increase MBS purchases, they’re reducing the securities flowing into the market and supporting prices.
In the 1990s and 2000s, the GSEs’ portfolios swelled as Fannie and Freddie Mac increased earnings by borrowing cheaply and investing in higher-yielding mortgage bonds. According to the report, by 2008, their combined portfolio grew to over $1.5 trillion, making it the GSEs main profit generator.
When the housing market collapsed in 2008, those Seeking Alpha said those hefty portfolios produced massive losses that helped push the two companies back to government conservatorship.
Even with the more than $50 billion increase in the GSEs’ retained portfolios, they have more than $200 billion left before they reach their cap.
