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Trump's Plan: MBS Purchases to Lower Mortgage Rates

  //house-home.news-articles.net/content/2026/02/1 .. -plan-mbs-purchases-to-lower-mortgage-rates.html
  Published in House and Home on Tuesday, February 10th 2026 at 5:13 GMT by Detroit News
      Locales: New York, Michigan, Florida, Washington, UNITED STATES

The Core of the Proposal: MBS Purchases and Rate Manipulation

The central mechanism of Trump's plan revolves around directing the Federal Reserve to purchase substantial volumes of mortgage-backed securities (MBS). This isn't a novel concept - the Federal Reserve employed a similar strategy during the COVID-19 pandemic to stabilize financial markets and lower borrowing costs. However, the scale proposed by Trump is significantly larger. By increasing demand for MBS, the Fed would, in theory, drive down mortgage rates, making home purchases more affordable. The goal is a return to the historically low rates seen in the aftermath of the 2008 financial crisis, though achieving a consistent 3% rate in the current economic climate presents a considerable challenge.

Who Stands to Gain? A Closer Look at the Beneficiaries

The most immediately apparent beneficiaries of lower mortgage rates would be first-time homebuyers. The soaring cost of homes, coupled with elevated interest rates, has priced many potential buyers out of the market. A reduction to 3% would significantly decrease monthly mortgage payments, potentially opening the door to homeownership for a wider segment of the population. This would particularly benefit younger generations who have faced increasingly difficult conditions for entering the housing market.

Existing homeowners looking to refinance would also benefit, potentially saving hundreds of dollars per month. For those who purchased homes at higher rates, a refinance could free up capital for other investments or expenses. However, this benefit is tempered by a crucial, often overlooked, consequence - the potential impact on home values.

The Potential Downsides: Risks for Homeowners, Savers, and the Economy

While lower rates may seem universally positive, the plan carries substantial risks. Perhaps the most counterintuitive consequence is the potential for depressed home values. A sudden and significant drop in mortgage rates could increase demand, but it also risks creating a situation where existing homeowners see their equity eroded. The law of supply and demand dictates that increased affordability can drive prices down as sellers adjust to a more competitive market, especially if supply remains constant.

Retirees and savers relying on fixed-income investments are another vulnerable group. Lower mortgage rates often correlate with lower bond yields. Bonds are a cornerstone of many retirement portfolios, providing a steady stream of income. A decline in bond yields would reduce the returns on these investments, potentially jeopardizing retirement security. Individuals who have diligently saved in bonds over decades could find their nest eggs diminished.

Furthermore, the massive injection of capital into the economy through MBS purchases raises serious concerns about inflation. Increasing the money supply without a corresponding increase in economic output can lead to higher prices for goods and services, effectively negating the benefits of lower mortgage rates. Controlling inflation is a delicate balancing act, and Trump's plan could complicate the Federal Reserve's efforts to maintain price stability.

Feasibility and the Independence of the Federal Reserve

Economists widely question the feasibility of the plan. The Federal Reserve operates independently of the executive branch. While the President can nominate members to the Federal Reserve Board, the board makes its own decisions regarding monetary policy. For Trump's plan to succeed, the Federal Reserve would need to agree to the large-scale MBS purchases, a scenario many experts deem unlikely.

"It's a gimmick that's not going to work," stated Odeta Kushi, deputy chief economist at First American Financial Corporation, echoing the sentiments of many in the financial community. "The Federal Reserve controls interest rates, not politicians."

The sheer scale of MBS purchases required to achieve a 3% mortgage rate would also be substantial, potentially straining the Federal Reserve's balance sheet and creating long-term financial risks.

The Political Context: Addressing Declining Homeownership

The timing of the proposal is significant. Homeownership rates in the United States have been steadily declining, particularly among younger Americans. This trend has fueled concerns about wealth inequality and the erosion of the middle class. Trump's plan is explicitly framed as a way to reverse this trend and stimulate economic growth by making homeownership more accessible. However, critics argue that addressing the root causes of housing unaffordability - such as limited supply and restrictive zoning regulations - would be a more effective long-term solution.