CHLA and ICBA say 'bold action' could bring mortgage rates down by as much as 35 basis points
The Community Home Lenders of America (CHLA) and the Independent Community Bankers of America (ICBA) are urging US financial regulators to take immediate steps to reduce mortgage rates, proposing that government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac purchase additional mortgage-backed securities (MBS) to stabilize the market and improve housing affordability.
In a joint letter sent to US Treasury secretary Scott Bessent and Federal Housing Finance Agency (FHFA) director William Pulte, the two associations called for “bold action to help today’s young families afford homeownership.” The groups argued that targeted GSE purchases of MBS would be “both effective and prudent” in narrowing the gap between mortgage rates and Treasury bond yields.
“The two pre-eminent national associations representing community lenders have joined together to ask Treasury and FHFA for action to bring down mortgage spreads back to historical levels,” said Scott Olson, CHLA’s executive director.
The spread between the 30-year fixed mortgage rate and the 10-year Treasury bond stood at 222 basis points as of October 17—well above the historic norm of 140 to 170 basis points. The groups said this disparity has contributed to a significant drop in housing affordability and home sales, which are on pace for one of the weakest years in three decades, according to data from the National Association of Realtors, cited by the ICBA.
CHLA and ICBA proposed that Fannie Mae and Freddie Mac be authorized to buy up to $300 billion in MBS each, but only when the mortgage-Treasury spread exceeds 170 basis points. They noted that this could lower mortgage costs by 30 to 35 basis points, providing meaningful relief to homebuyers.
The letter also pointed out that the GSEs currently have $204 billion of their combined $450 billion in retained portfolio capacity in use, leaving room for an additional $246 billion in MBS purchases under existing limits. The groups said this existing authority could be used immediately to help reduce the rate spread.
The proposal would not replicate the pre-2008 policy that gave Fannie and Freddie unlimited buying power, the letter clarified. Instead, it calls for “reasonable limits” and oversight by FHFA and Treasury to ensure stability.
