The Cost to Housing of Donald Trump

July 23, 2025 | President Trump says he wants a 1% rate on fed funds, but the noise coming from the White House and various federal agencies regarding Federal Reserve Board Chairman Jerome Powell has actually pushed up mortgage rates and widened spreads between 30-year mortgages and Treasury debt. How much has the Trump Administration hurt the US residential housing sector since the start of 2025?  Let us assess the damage so far.

We are all in favor of reform at the Federal Reserve Board, but could we do it in a way that minimizes public yowling and thus interest rate volatility, please? President Trump has been threatening to "fire" Chairman Powell for months. Most recently, Treasury Secretary Scott Bessent contradicted President Trump. He told the media that he doesn't think Fed Chair Jerome Powell needs to step down immediately.

Why is Secretary Bessent talking publicly about Powell or the Fed at all? How does this cacophonous squawking enhance the credibility of the Trump Administration or the U.S. Treasury?

The market volatility that accompanied the arrival of President Trump in Washington pushed down residential lending volumes by about a hundred billion dollars in Q1 2025 to just $384 billion, as shown in the chart below from the Mortgage Bankers Association. This equates to tens of millions in lost income for a mortgage industry that is barely profitable, as well as billions more in mortgage servicing rights (MSR) that were never created.

Source: Mortgage Bankers Association

The change between the MBA production estimates for Q1 2025 made last year and the Q1 2025 actuals was particularly striking. When President Trump was elected in November 2024, the MBA was expecting almost $500 billion in production in Q1 2025. The data in the chart above through Q1 2025 are actuals and the rest of the figures are MBA estimates of future production.

How will mortgage volumes look during the rest of 2025 with President Trump calling for the resignation of Chairman Powell? Interest rates rose post-election, pushing up valuations for crypto currencies and pushing prices down for stocks and bonds. Mortgage applications taken at the end of the year closed in Q1, but higher interest rates killed profitability. Rates moved down a bit towards the end of Q1, but Trump's "Liberation Day" pushed them right back up again.

The 50 bps move on the 10-year Treasury in Q1 resulted in a big move in the MBA mortgage origination estimates. And the continuing noise coming from the White House on interest rates is decidedly unhelpful, both for the mortgage markets and the wider economy.

It is interesting to note that the members of the Trump team do not seem able to stay on message. And what is the message? Nobody seems to know. Why has not White House chief of staff Susie Wiles restored order from this chaos? The chart below shows the to-be-announced market in Fannie Mae MBS for delivery in the third week of August.

Source: Bloomberg (07/22/05)

Imagine trying to hedge interest rate risk for a mortgage lender with Trump and members of his team attacking the central bank every day in the media. The on-the-run TBA contract for residential mortgage-backed securities (MBS) for delivery in August is a 6.5%, meaning that lenders are writing marginally profitable loans in the high 6s or low 7s into 6% or 6.5% TBAs for August?? Yuk. Overall, new MBS issuance for all of 2025 may touch the dreadful volume lows of 2023 with worse profitability, this thanks to the inconsistent messages coming from the Trump team.  This is not helpful for housing.

Source: Ginnie Mae

Two of the big casualties of the noise emanating from the Trump White House are the GSEs, Fannie Mae and Freddie Mac.  These two penny stocks are up over 400% over the past year, leaving bitcoin and other worthless notions in the dust.  But in the past six months, the GSEs have fallen behind as several real lenders, including loanDepot (LDI), Guild Holdings (GHLD), Anywhere Real Estate (HOUS) and Mr. Cooper (COOP) have passed them by on mounting expectation of an eventual interest rate cut. 

One reason that the GSE shares may be suffering is that the Trump Administration is apparently wrestling with how to take Fannie Mae and Freddie Mac out of conservatorship. “Amid a potential whirlwind of change for Fannie Mae and Freddie Mac, the Trump Administration has clamped down on information about plans to recapitalize the agencies,” notes Asset Backed Alert. 

“The secrecy stems from an ongoing consolidation of power over the project with a team consisting of Jeff Wrase, Mark Calabria and Jonathan McKernan, each a confidant of President Donald Trump. Sources said Federal Housing Finance Agency head Bill Pulte, meanwhile, has been largely cut out,” Asset Backed Alert reports. 

Of note, Pulte's sudden announcement that the GSEs will accept loans underwritten using VantageScore 4.0 is unlikely to result in any meaningful increase in residential loan volumes. Simply stated, most members of the mortgage finance ecosystem are years away from using VantageScore 4.0 or FICO 10T for loan underwriting. We'll be updating readers on the messy details of Bill Pulte's great leap forward in credit scores in our next column in National Mortgage News.

As the Trump Administration moves forward with a strategy to release the GSEs, new market volatility is likely to negatively impact the financing market for residential mortgages. Add that cost to the mounting Trump tab when it comes to housing overall. The fact that none of the Trump inner circle considering how and when to release the GSEs from conservatorship have any experience working in the financial markets is just another remarkable factoid to add to the growing pile of Trump firsts. He just keeps on winning.

As we noted to subscribers of our Premium Service this week, Robinhood Markets (HOOD) is up almost 500% LTM, proving that there is a lot more leverage for investors in the facilitators of speculation in crypto and stable coins than in the tokens themselves. Readers of our new book, “Inflated: Money, Debt and the American Dream,” understand the lesson taught by Jim Fisk and Jay Gould more than a century ago, namely the arbitrage between paper promises and hard value ultimately is the best place to deploy speculative capital. 

In our next comment in The Institutional Risk Analyst, we'll update readers on the latest bank and nonbank earnings, including the yesterday's results from market bellwhethers PennyMac Financial (PFSI) and Mr. Cooper (COOP).

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