Experts debate GSEs' role in reducing mortgage rates

"The Community Home Lenders of America (CHLA), one of the associations advocating for the idea, has recently called on the U.S. Department of the Treasury and the Federal Housing Finance Agency (FHFA) to allow the GSEs to expand their retained portfolios when the spread between the 10-year yield and the 30-year mortgage rate is above 170 basis points. The current level is 215 bps due to the Fed's quantitative tightening (QT) program imposed in 2022 higher than the historic norm of 140 to 170 bps."

"Trade groups representing community banks and home lenders called for amendments to the Preferred Stock Purchase Agreements (PSPAs) to enable the GSEs to purchase up to $300 billion of their own MBS and Ginnie Mae MBS when spreads are above 170 bps. That would certainly help reduce mortgage rates and tighten the spread between Treasurys and mortgages, which has been a little elevated for some time, said Scott Ferrell, executive vice president and director of capital markets at AnnieMac Home Mortgage."

CHLA asked the U.S. Treasury and FHFA to permit GSEs to expand retained portfolios when the spread between the 10-year yield and 30-year mortgage rate exceeds 170 basis points. The mortgage–Treasury spread currently stands at about 215 basis points, attributed to the Fed’s 2022 quantitative tightening. The Fed will reinvest MBS paydowns into Treasuries, further reducing demand for mortgage assets. Trade groups seek amendments to PSPAs to allow GSEs to buy up to $300 billion of their own MBS and Ginnie Mae MBS when spreads exceed 170 bps. Supporters say this would lower mortgage rates and stabilize MBS prices, while some warn of conflicts of interest and offer alternative fixes like LLPA changes.

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