A government-sponsored enterprise stock offering appears to still be in the works with care being taken not to adversely influence mortgage-backed securities trading as momentum builds to use their portfolios to that end.
"It's not off the table. We're working on it very deliberately," Treasury Secretary Scott Bessent told Fox Business News' Maria Bartiromo, noting that spreads between mortgages and U.S. government bonds would have to "remain the same or come down" in any offering.
The stress on avoiding spread widening and higher rates has added to speculation that the GSEs, which have been in conservatorship since 2008, could use their growing portfolio to achieve its goal in regards to spreads. Spreads influence consumer rates, which Bessent and other Trump administration officials have said they would like to lower.
"It's not that much of a leap to say this is one avenue they could use to
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Portfolio growth within caps may influence spreads: study
Schmidt's analysis of data confirms other reports that show Fannie Mae and Freddie Mac's retained portfolios are the
"People ask me all the time. 'What could cause spreads to go wider or go tighter from here?' Well, this is one thing that could very well cause spreads to go tighter," he said.
Schmidt's study is based on the latest public numbers, which show that as of October, Freddie had a $122 billion retained portfolio, including $35 billion in mortgage bonds that have a Committee on Uniform Securities Identification Procedures numbers associated with them.
Fannie, in comparison, had a $111 billion retained portfolio inclusive of $55 billion in CUSIP MBS in October. Given each GSE has a $225 billion cap, those numbers suggest further room to grow.
"If, next year, both of their portfolios each increased by $100 billion and any significant part of that was in the MBS CUSIP market, spreads could be materially tighter," said Schmidt.
Considerations around using GSE portfolios for this purpose
Earlier this year, the Community Home Lenders of America and Independent Community Bankers of America wrote a letter to Bessent and the head of Fannie and Freddie's regulator suggesting
The portfolios have been limited since the Great Financial Crisis led to conservatorship and critics of their use for this purpose includes questions about the risk involved, how appropriate it is and
The Fed recently redirected proceeds from runoff of its MBS bond portfolio for reinvestment in shorter-dated treasuries, so it will likely have little to no impact on mortgage spreads, according to Schmidt.
"I think what they're going mostly back into is bills. If they were more going into CUSIP securities like longer duration treasuries, that would affect the basis, but I think the Fed has already said that they want to stay really short with that reinvestment," he said.
