Allowing Fannie Mae and Freddie Mac to increase their Portfolios would add much needed demand for MBS as the Fed and banks are allowing their massive MBS holdings to run off their books.
It would be a win/win situation, American Families would see reduced mortgage rates and Fannie Mae and Freddie Mac after properly hedging for duration risk would increase their Net Interest Margin Income.
However, the Federal Reserve would have less control when engaging in Quantitative Tightening if Fannie Mae and Freddie Mac match or exceed monthly or quarterly purchases of MBS when the Fed is selling MBS.
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