By the Numbers
GSEs hold portfolios steady but stay active
This material is a Marketing Communication and does not constitute Independent Investment Research.
Fannie Mae’s and Freddie Mac’s retained mortgage portfolios changed little in July. Fannie Mae’s portfolio fell $1.7 billion to $173.4 billion, its second decline in three months, while Freddie Mac’s rose about $1.2 billion to $139.7 billion. Fannie Mae expanded through April but has been flat since, while Freddie Mac’s balance has barely moved all year.
Fannie Mae’s July decline left its portfolio $40.9 billion larger than at year-end 2025 (Exhibit 1). Freddie Mac’s increase pushed its portfolio to $500 million above its year-end balance. The combined portfolio balance eased to about $313 billion.
Exhibit 1. Fannie Mae’s retained portfolio slipped in July while Freddie Mac’s grew
Source: Fannie Mae, Freddie Mac, Santander US Capital Markets.
Fannie Mae’s larger year-to-date increase remains consistent with an active investment program. However, the stop-and-start monthly pattern, now including two declines in three months, does not fit with a fixed monthly growth target. Fannie Mae stated in its second quarter 10-Q that its portfolio purchases were intended to support the secondary market while generating viable economic returns. That suggests Fannie Mae has discretion over investment activity, because programmatic buying could force non-economic purchases.
Despite small changes in the overall portfolio balance, the GSEs were active. Fannie Mae purchased $22.9 billion of assets, sold $22.3 billion and had $2.3 billion liquidate from its portfolio. The securities balance fell $4.7 billion while the loan balance increased $3.0 billion. Similarly, Freddie Mac purchased $32.5 billion, sold $30.2 billion and had $1.2 billion liquidate, for $1.2 billion net growth within rounding. Combined purchases of $55 billion produced only a $500 million net decline.
Interest-rate exposure kept rising at Freddie Mac but leveled off at Fannie Mae (Exhibit 2). Fannie Mae’s duration gap averaged 1.30 years in July, down from 1.31 years in June, the first decline this year. Freddie Mac’s duration gap averaged 1.42 years, up from 1.25 years in June. Fannie Mae’s current duration gap means that its net portfolio value is expected to fall about 1.3% if rates increase 100 bp and rise about 1.3% if rates decrease 100 bp, ignoring convexity.
Exhibit 2. Freddie Mac’s interest-rate exposure kept rising while Fannie Mae’s leveled off
Source: Fannie Mae, Freddie Mac, Santander US Capital Markets.
The elevated exposure reflects the GSEs’ choice to retain more longer-term rate exposure rather than fully hedge the equity-supported portion of the portfolios. Fannie Mae reported that its interest-rate strategy now balances market-value sensitivity against the earnings volatility caused by short-term rate changes.
Freddie discloses the duration gap separately for assets primarily funded by debt and all other financial instruments. In July, the duration gap for assets primarily funded by debt again rounded to zero months, while the duration gap for all other assets was 59 months (4.92 years). The total duration gap of 17 months (1.42 years) implies leverage of roughly 3.5x [=59/17], down from 3.9x in June.
Fannie Mae returned to net debt issuance in July after pausing in June (Exhibit 3). Its outstanding debt balance rose $10.5 billion to $188.6 billion, close to the $10.4 billion average monthly increase from January through May. Freddie Mac’s debt balance fell $5.6 billion to $179.9 billion, leaving Fannie Mae with more debt outstanding than Freddie Mac for the first time since at least January 2025.
Exhibit 3. Fannie Mae’s debt balance surpassed Freddie Mac’s in July
Source: Fannie Mae, Freddie Mac, Santander US Capital Markets.
Both firms still have capacity to add mortgage-backed securities. Fannie Mae’s portfolio measured $175.8 billion against its $225 billion cap at the end of July, and Freddie Mac’s measured $160.9 billion against the same cap. These balances are higher than the earlier portfolio balances because 10% of the notional amount of interest-only securities also counts toward the investment cap. Freddie Mac has a larger IO position than Fannie Mae, roughly $212 billion notional versus $24 billion. The available space versus the cap and continued activity suggest that portfolio growth could resume at any time, which would cut into net supply available to other investors. Growth would likely concentrate in production coupons, where purchases would have the largest effect on primary mortgage rates.
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