By the Numbers
Fannie Mae, Freddie Mac add $10.5 billion in February
This material is a Marketing Communication and does not constitute Independent Investment Research.
The Fannie Mae and Freddie Mac investment portfolios grew by a combined $10.5 billion in February, with Fannie Mae leading the way. But while Fannie Mae’s growth has kept pace with last fall, Freddie Mac’s has slowed. This raises questions about the intended pace of MBS purchases following the early January announcement that Fannie and Freddie would buy $200 billion agency MBS. Interest rate risk in each portfolio also grew, consistent with both companies’ stated plans not fully hedge interest rate risk to help lower earnings volatility.
Freddie Mac’s disclosure offers some additional detail that suggests the portfolio is currently 4x levered, down from an estimated 4.4x levered in January. This is well below the estimated 40x leverage the GSEs used before 2008.
Fannie Mae added $8.7 billion of mortgage exposure in February, $4.2 billion of agency MBS and $4.5 billion of loans (Exhibit 1). That is less than the $9.2 billion added in January and is the lowest month of growth since adding $5.5 billion in September. Most of the growth that started last fall has been with securities, while loan growth has been modest. So far there is no indication that Fannie Mae’s portfolio is growing faster after the January announcement than it was before the announcement.
Exhibit 1. Fannie Mae’s investment portfolio added MBS in February
Source: Fannie Mae, Santander US Capital Markets.
Freddie Mac’s portfolio only grew by $1.8 billion in February, adding $7.0 billion in MBS but shedding $5.2 billion in loans (Exhibit 2). The portfolio shrank $2.4 billion in January, so it is still slightly smaller than its balance at the end of 2025. The amount of agency MBS in the portfolio has grown steadily since September but falling loan balances have offset that growth this year. Mortgage spreads should be equally influenced whether the portfolio holds pools or agency-eligible loans.
Exhibit 2. Freddie Mac’s investment portfolio also added MBS, but shed loans
Source: Freddie Mac, Santander US Capital Markets.
The growth rate of the two portfolios combined has slowed in January and February compared to the period from June through December. The combined portfolios grew by about $15 billion per month over those six months but have averaged growth of $8.65 billion per month over January and February. This raises the question of the precise meaning of the statement that the GSEs would buy $200 billion MBS. Spreads tightened immediately after the announcement as the market anticipated MBS buying and portfolio growth would increase.
Exhibit 3. The combined pace of portfolio growth has slowed
Source: Fannie Mae, Freddie Mac, Santander US Capital Markets.
The higher growth at Fannie Mae’s portfolio has pushed its balance above Freddie Mac’s for two consecutive months (Exhibit 4). Freddie’s had been the larger portfolio since July 2024. The chart reiterates that Fannie’s portfolio growth in 2026 has been consistent with growth in late 2025, while Freddie’s portfolio growth has dropped to roughly zero.
Exhibit 4. Fannie Mae’s portfolio balance surpassed Freddie’s
Source: Fannie Mae, Freddie Mac, Santander US Capital Markets.
Fannie Mae and Freddie Mac have both stated they no longer plan to fully hedge interest rate risk in their investment portfolios (Exhibit 5). This chart shows that the duration gap of each portfolio has been growing. The duration gap measures the sensitivity of portfolio value to changes in interest rates. For example, Fannie Mae’s duration gap is currently 0.58 years, which means the portfolio’s value is expected to drop 0.58% if rates rise 100 bp and gain 0.58% if rates fall 100 bp. Those estimates ignore the negative convexity typical of mortgage portfolios, which means the portfolio should lose even more if rates were to increase but gain less if rates were to decrease.
Exhibit 5. Both portfolios continued to add interest rate risk
Source: Freddie Mac, Santander US Capital Markets.
Both GSEs feel that fully hedging interest rate risk leaves their portfolios exposed to changes in short term interest rates. So, they can lower the earnings volatility due to short-term rate moves by increasing their exposure to changes in longer rates.
Freddie Mac goes a little further and separates its portfolio into pieces backed by dept and equity. It will continue to hedge interest rate risk of the portion of the portfolio backed by debt but will no longer hedge interest rate risk in the portion backed by equity. Freddie Mac also discloses the duration gap of these two pieces, in addition to the overall duration gap. The separate disclosures suggest the leverage ratio is 4.0x (8 months/36 months), down from the January estimate of 4.4x.
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