• Trump announces directive for federal government to buy $200 billion in mortgage bonds.
• The initiative aims to lower mortgage rates and monthly payments for homeowners.
• Fannie Mae and Freddie Mac reportedly hold $200 billion in cash for this purchase.
• Economic experts express concern over the long-term effectiveness of this strategy.
• Mortgage rates currently average around 6.2%, impacting housing affordability.

U.S. President Donald Trump has ordered the federal government to purchase $200 billion in mortgage bonds, asserting that this initiative will help lower mortgage rates and make homeownership more affordable for Americans. "This will drive Mortgage Rates DOWN, monthly payments DOWN, and make the cost of owning a home more affordable," Trump stated in a post on Truth Social. This directive comes as concerns about housing affordability mount ahead of the November midterm elections, with home prices outpacing income growth due to a persistent shortage of housing supply, according to Reuters and Business Insider.

The funds are expected to come from Fannie Mae and Freddie Mac, which have been under government conservatorship since the 2008 financial crisis and currently possess $200 billion in cash, according to Trump. However, it remains unclear who Trump's "representatives" are or how exactly the bond purchases will be executed, as the White House has not provided further details. Analysts, including Daryl Fairweather from Redfin, note that while the initiative may temporarily lower 30-year fixed mortgage rates by approximately 0.25 to 0.5 percentage points, it does little to address underlying supply issues in the housing market, as mentioned in CBS News and India Times.

Mortgage rates have been averaging around 6.2%, and current economic conditions have resulted in homeowners being reluctant to sell, keeping housing supply tight. Trump’s announcement follows his recent goal of banning large institutional investors from purchasing single-family homes, aimed at improving affordability across the market. Economic experts remain skeptical about the long-term impact of these bond purchases. They warn that while such actions may reduce mortgage costs initially, the fundamental issues causing housing inflation, such as inventory shortages, will likely persist, as pointed out by Reuters, Business Insider, and India Times.

Historically, the Federal Reserve has employed similar strategies during economic downturns to help lower borrowing costs, a method that significantly facilitated refinancing for many homeowners during previous crises. However, Trump's proposal carries risks, as employing the cash reserves of Fannie Mae and Freddie Mac might expose them to greater vulnerability in the event of a housing market downturn. Analysts caution that relying on these measures without addressing the root causes of the housing crisis could lead to further complications in the future, as noted in CBS News and India Times.