Most U.S. home loans do not stay with your bank.

They get bundled into bonds called agency mortgage-backed securities.

Investors, and for years the Fed, buy those bonds. That link sets your mortgage rate.

The Fed still holds roughly $2 trillion in agency MBS from its crisis-era buying.

It is now letting those bonds run off as loans get repaid.

In March 2025, the Fed slowed its overall runoff but kept shrinking its MBS.

With mortgage rates near 7%, few people refinance, so the bonds repay slowly.

That means the Fed's MBS pile is falling only a little each month.

Your loan is sold to Fannie Mae or Freddie Mac, or backed by Ginnie Mae.

They bundle thousands of similar loans into one security.

They also guarantee the payments, so buyers take rate risk, not default risk.

You pay your mortgage, and the cash flows through to the bondholders.

When you refinance or move, the loan repays early, and the bond shrinks.

That early-repayment risk is the special feature of these bonds.

The first stress point is prepayment. When rates fall, loans repay fast, and holders get cash back at a bad time.

When rates rise, loans repay slowly, and holders are stuck with low-rate bonds for longer.

The second is the Fed's exit. As it steps back, private buyers must hold more, which can widen mortgage spreads.

The third is the guarantee. It rests on Fannie and Freddie, which the government backs but does not fully own.

The agency MBS market is deep and the guarantee has held, so credit risk to holders is low.

That structure has funded American housing for decades and deserves credit.

What can bend is the spread between mortgage rates and Treasuries, which sets what buyers cost you.

You can watch that spread. Freddie Mac posts the average 30-year mortgage rate every week.

The Fed's H.4.1 report shows how fast its MBS holdings are falling.

The agency MBS turns your mortgage into a traded bond, with early repayment as its quirk.

The credit is sound. The moving part is the spread as the Fed keeps stepping back.

The next test is the path of mortgage rates. Watch the 30-year rate and the mortgage-to-Treasury spread.