Following the administration’s directive for Fannie Mae and Freddie Mac to buy $200bn of agency mortgage-backed securities (MBS), the average interest rate for a 30-year fixed mortgage slid to 6.06%¹, its lowest level since late 2022. While the announcement is being sold as a way to pressure mortgage rates lower, its likely mortgage rates continue to hover in the low-6% range given the potential for sticky long-term interest rates and continued tight spreads.

As we highlight in our recent piece, fundamental drivers of the nominal U.S. 10-year Treasury yield², the key building block for the 30-year mortgage rate, signal limited scope for base rates to decline. As such, agency MBS purchases could help lower mortgage rates by helping narrow the mortgage spread. However, the mortgage spread—the spread between the 30-year fixed mortgage rate and the U.S. 10 Year Treasury yield—has already tightened and further compression appears limited.

The mortgage spread can be broken down into two components: the primary/secondary mortgage spread, and secondary mortgage spread.

• The primary/secondary mortgage spread is the difference between the mortgage rate offered to borrowers (primary rate) and the yield on mortgage-backed securities (MBS) in the secondary market. It’s the compensation earned by mortgage originators and reflects lender costs (origination, servicing and fees) and profit, as well as market demand.
• The secondary mortgage spread is the difference between the yield on MBS and the yield on the benchmark 10-year Treasury note, representing investor compensation for prepayment risk and credit risk for owning MBS over Treasuries.

The primary/secondary mortgage spread are largely driven by mortgage originations and refinancings. If more people are refinancing and/or taking out new mortgages that typically leads to greater capacity constraints and pressures spreads wider. Early signs of the housing market thawing could contribute to widening spreads, though current homebuilding data still appear tepid. The secondary mortgage spread is driven by perceived credit risk which is currently very low and helping keep spreads tight, and prepayment risk which could widen spreads if interest rate volatility picks up. Altogether, conflicting forces impacting the spread likely keep the mortgage spread rangebound.      

Separate from the mechanics of mortgage spreads, there are lingering items investors should consider:

1. If the FHFA is mandating GSE purchases, it raises questions about risk limits, capital usage, hedging capacity and earnings volatility, at a time when the administration is openly weighing next steps on taking these agencies public.
2. The Fed is still shrinking its MBS holdings at a pace of roughly $15bn per month, essentially equally offsetting Fannie/Freddie purchases. Thus, the net technical boost to the market could be smaller than the headline suggests.
3. Additional housing initiatives may be forthcoming including restricting institutional buyers of single-family homes, longer-dated mortgage structures and down-payment flexibility, but feasibility and execution matter most.

All things considered, this action may compress MBS spreads at the margin, but it’s unlikely to deliver a step-change lower in mortgage rates. In our view, the bigger driver of mortgage rates is still the broader interest rate environment and potential further policy announcements that impact the primary market, not directed purchases from already major holders of MBS.

¹ According to Freddie Mac as of week ending January 16, 2026.

² Nominal U.S. 10 Year Treasury yield is the sum of real fed funds rate, inflation, and 10-year Treasury term premium.

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