# What Can Government Do to Lower Mortgage Rates?
The federal government holds several policy levers that could help reduce mortgage rates, but structural barriers and competing priorities must first be addressed before meaningful relief reaches borrowers.
The Federal Reserve controls the federal funds rate, the interest rate at which banks lend to each other overnight. When the Fed cuts rates, mortgage rates typically follow, though not in lockstep. Lower fed funds rates reduce the cost of capital for lenders, creating downward pressure on what consumers pay for 30-year mortgages. The Fed has already signaled potential rate cuts ahead, but timing remains uncertain as inflation lingers above the central bank's 2 percent target.
Beyond rate policy, the government influences mortgage markets through its control of government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. These agencies guarantee roughly half of all mortgages in America. By adjusting the fees these entities charge lenders, or by expanding their purchasing appetite for mortgages, Washington could theoretically lower origination costs and competitive pressure on mortgage rates. The Federal Housing Administration also sets insurance requirements and down payment minimums that affect borrowing costs.
Housing supply represents the deeper problem. Low inventory keeps home prices elevated, which locks buyers into larger loans even if rates decline slightly. Until construction accelerates and more homes reach the market, rate cuts alone won't solve affordability. The government could streamline zoning regulations, reduce permitting timelines, and offer tax incentives for builders. Several states have already moved on zoning reform, but federal action remains scattered.
Regulatory relief could help too. Dodd-Frank lending standards and qualified mortgage rules add compliance costs that lenders pass to consumers. Revising these regulations requires Congressional action. The Biden administration considered some modifications but faced pushback from consumer advocates worried about predatory lending returning.
Labor shortages in construction cripple new housing supply. Immigration reform that expands the construction workforce would boost supply faster than any rate cut could improve affordability. This remains deeply partisan and unlikely in the near term.
The government could also direct more funding toward down payment assistance and first-time homebuyer programs, reducing the size of mortgages Americans must take out. These programs exist but operate at modest scale.
Lenders themselves face constraints. Mortgage servicing costs and litigation risk drive up rates. Modernizing loan servicing systems and streamlining foreclosure processes could reduce risk premiums built into mortgage pricing.
What complicates action is the priority conflict. The Fed and Treasury want to fight inflation. Higher rates cool demand and price growth, but they also push mortgage rates up. Easing monetary policy too soon risks reviving inflation. This tension explains why rate relief remains modest even as housing affordability hits 40-year lows.
The realistic near-term outcome involves incremental rate cuts as inflation cools, paired with modest regulatory tweaks and targeted housing supply initiatives. Sweeping reform requires Congressional coordination that hasn't materialized.