By the Numbers
GSEs hold portfolios steady but stay active
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Fannie Mae’s and Freddie Mac’s retained mortgage portfolios held steady for another month, ending August down about $2.0 billion month-over-month.
Fannie Mae expanded its portfolio through April but has been flat since, while Freddie Mac’s balance has barely moved all year. But growth may come in September—wide mortgage spreads could entice the portfolios to grow, and FHFA Director William Pulte posted on X mid-month that they were ramping up purchases.
Fannie Mae’s August decline of $757 million left its portfolio $40.1 billion larger than at year-end 2025 (Exhibit 1). Freddie Mac’s portfolio shrank about $1.28 billion, leaving its balance $780 million less than the start of the year. The August drop came from the whole loan portions of each portfolio; Fannie Mae’s security balance was unchanged, and Freddie Mac’s increased a little.
Exhibit 1. Fannie Mae’s retained portfolio slipped in July while Freddie Mac’s grew
Source: Fannie Mae, Freddie Mac, Santander US Capital Markets.
The GSEs may have stepped up their purchases in September. FHFA Director Pulte posted on the X platform on September 18 that “We are beginning to buy even more [MBS], large quantities, as we speak.” Mortgage spreads have also widened considerably this month, which could make adding MBS more attractive than it has been. For example, FNCL 6.0% option-adjusted spreads are 9 bp wider than at the start of the month and peaked at 14 bp wider. The last time its OAS reached this level was April 2025.
The GSEs remained active in their portfolios despite the unchanging balances. Freddie Mac’s activity was about the same, buying $32.4 billion. But Fannie Mae’s buying slowed to $18 billion MBS in August compared to about $23 billion in July. Sales and liquidations outweighed purchases in both porftolios.
Interest-rate exposure continued rising in Freddie Mac’s portfolio but dropped in Fannie Mae’s portfolio (Exhibit 2). Fannie Mae’s duration gap averaged 1.25 years in August, down from 1.30 years in July. Freddie Mac’s duration gap averaged 1.50 years, up from 1.42 years in July. The duration gap measures the sensitivity of the portfolio’s market value to interest rate changes. For example, Fannie Mae’s current duration gap means that its net portfolio value is expected to fall about 1.25% if rates increase 100 bp and rise about 1.25% if rates decrease 100 bp, ignoring convexity.
Exhibit 2. Freddie Mac’s interest-rate exposure kept rising while Fannie Mae’s dropped
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 Mac discloses the duration gap separately for assets primarily funded by debt and all other financial instruments. In August, the duration gap for assets primarily funded by debt again rounded to zero months, while the duration gap for all other assets was 62 months (4.17 years). The total duration gap of 18 months (1.50 years) implies leverage of roughly 3.44x [=62/18].
Fannie Mae’s debt balance dropped in August after jumping in July (Exhibit 3). The two GSEs finished the month with nearly the same amount of debt outstanding. Fannie Mae had $177.9 billion and Freddie Mac $177.5 billion.
Exhibit 3. Fannie Mae and Freddie Mac ended August with similar debt outstanding
Source: Fannie Mae, Freddie Mac, Santander US Capital Markets.
Both firms still have capacity to add MBS. Fannie Mae’s portfolio measured $175.2 billion against its $225 billion cap at the end of August, and Freddie Mac’s measured $159.5 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 $211 billion notional versus $26 billion. The available space versus the cap means the GSEs could add MBS 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 mortgage spreads and primary mortgage rates.
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