Federal Reserve MBS holdings are mortgage-backed securities held in the central bank’s securities portfolio. They matter because changes in Fed demand for mortgage securities can affect MBS yields, mortgage-market risk premiums, longer-term interest rates and, ultimately, some of the financing conditions facing U.S. homebuyers.
The latest Federal Reserve H.4.1 balance-sheet release for August 20, 2026 shows that the Fed held approximately $1.931 trillion in mortgage-backed securities as of August 19, 2026. About $1.923 trillion consisted of residential MBS, while roughly $7.5 billion consisted of commercial MBS.
But the current policy is easy to misunderstand. The Fed stopped shrinking its aggregate securities holdings in December 2025. Its MBS portfolio can nevertheless continue declining because the FOMC now directs the New York Fed’s trading desk to reinvest principal payments from agency securities into Treasury bills rather than new MBS. That distinction is critical for understanding the Federal Reserve balance sheet in 2026.
What Are Federal Reserve MBS Holdings?
Mortgage-backed securities, or MBS, are securities whose payments are ultimately supported by cash flows from pools of mortgage loans. Homeowners make principal and interest payments on the underlying mortgages, and those cash flows move through the securitization structure to investors that own the securities.
The Federal Reserve primarily holds agency mortgage-backed securities. The Federal Reserve Bank of New York’s official agency MBS operations page explains that the New York Fed conducts agency MBS transactions for the System Open Market Account, or SOMA, under instructions from the Federal Open Market Committee. The securities involved are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.
That does not mean the Federal Reserve becomes the mortgage servicer for individual homeowners. Borrowers generally continue dealing with their mortgage servicer. The Fed owns securities representing claims on cash flows generated by large pools of mortgages.
MBS are only one part of the broader asset portfolio. Investozora’s guide to the Federal Reserve balance sheet explains how Treasury securities, MBS, lending programs, reserves, currency and other assets and liabilities fit together.
How Much MBS Does the Federal Reserve Hold in 2026?
The Federal Reserve’s August 20 H.4.1 release provides the clearest current snapshot. As of August 19, 2026, the Fed reported:
| Federal Reserve Holding | Amount |
|---|---|
| U.S. Treasury securities | $4.542 trillion |
| Mortgage-backed securities | $1.931 trillion |
| Federal agency debt securities | $2.347 billion |
| Total securities held outright | $6.475 trillion |
| Total Federal Reserve assets | $6.746 trillion |
Within the MBS portfolio itself:
| Type of MBS | Amount |
|---|---|
| Residential mortgage-backed securities | $1.923 trillion |
| Commercial mortgage-backed securities | $7.514 billion |
| Total MBS held outright | $1.931 trillion |
These figures come directly from the H.4.1 supplemental information on mortgage-backed securities, where the Fed specifies that the reported MBS figure represents the current face value, or remaining principal balance, of the securities.
Investozora analysis: MBS are still a major part of the Fed portfolio
Using those official August 19 balances, mortgage-backed securities represented approximately: $1.930728 trillion ÷ $6.475303 trillion × 100 = 29.8%, of the Federal Reserve’s securities held outright.
Residential MBS accounted for about: $1.923213 trillion ÷ $1.930728 trillion × 100 = 99.6%, of total reported MBS holdings. These percentages are Investozora calculations using Federal Reserve H.4.1 data. They are not percentages published by the Federal Reserve.
The same release shows that MBS holdings were approximately $186.0 billion lower than on August 20, 2025. Using the current balance and the Fed’s reported year-over-year change, that represents an approximate 8.8% decline over one year.
That decline is significant, but it should not be interpreted on its own as evidence that the Fed is still conducting the same quantitative-tightening program it used between 2022 and 2025. The mechanics changed.
Why Did the Federal Reserve Buy Mortgage-Backed Securities?
The Federal Reserve became a major MBS investor during periods when policymakers wanted to support financial-market functioning and provide additional monetary accommodation beyond conventional changes in short-term interest rates. During the global financial crisis, the Fed began purchasing large amounts of agency MBS as part of its large-scale asset purchase programs.
A detailed Federal Reserve history of its agency MBS portfolio shows that the first major program resulted in the acquisition of roughly $1.25 trillion of agency MBS through 2010. Another round of purchases beginning in 2012 eventually helped lift agency MBS holdings to roughly $1.8 trillion by the end of those purchase programs.
The Fed again expanded its balance sheet dramatically during the COVID-19 shock. According to the same Federal Reserve research, SOMA agency MBS holdings increased from approximately $1.4 trillion in early 2020 to $2.7 trillion by mid-2022, when MBS accounted for about 30% of the SOMA portfolio.
These purchases formed part of what is commonly called quantitative easing, or QE. Investozora’s quantitative easing explainer covers the broader mechanism through which central-bank securities purchases can influence financial conditions.
How Can Fed MBS Purchases Affect Mortgage Rates?
The Federal Reserve does not directly dictate the interest rate that a bank or mortgage lender must charge on a 30-year mortgage. Instead, MBS purchases can affect the financial markets through which mortgage credit is funded and priced.
When a large buyer such as the Federal Reserve purchases agency MBS, it increases demand for those securities and removes some securities and some associated duration and prepayment risk, from the amount private investors otherwise would need to hold.
That can affect MBS prices, yields and the spread investors demand over comparable Treasury securities. Federal Reserve economists Diana Hancock and Wayne Passmore examined this mechanism in their research on large-scale asset purchases, MBS yields and U.S. mortgage rates.
Their analysis found that Federal Reserve accumulation of MBS and Treasury securities lowered MBS yields and mortgage rates by more than changes in market expectations alone would have suggested, supporting the importance of a portfolio-rebalancing channel.
Separate Federal Reserve research on its securities portfolio and mortgage markets similarly found evidence that larger Federal Reserve portfolio holdings exerted downward influence on MBS yields and mortgage rates, although the researchers emphasized that multiple transmission channels can work simultaneously and are difficult to estimate precisely.
That qualification matters. It would be inaccurate to say that every $100 billion of Fed MBS purchases lowers mortgage rates by a fixed number of basis points. The effect depends on market conditions, the size and composition of the Fed portfolio, investor behavior, expectations and the state of mortgage markets.
Does the Federal Reserve Set Mortgage Rates?
No. The FOMC directly targets the federal funds rate, which is an overnight interest rate in the banking system. A 30-year fixed mortgage is a much longer-term financial instrument. Mortgage rates are influenced by a wider set of variables, including:
- Treasury yields
- expected future Federal Reserve policy
- inflation expectations
- economic growth expectations
- MBS yields
- the spread between MBS and comparable Treasury securities
- prepayment and duration risk
- lender operating costs and margins
- mortgage guarantee fees
- broader investor demand for fixed-income assets
Investozora’s guide to the federal funds rate and Treasury yields explains why long-term market yields do not simply move point-for-point with the Fed’s overnight policy rate. The transmission chain is better understood as:
Federal Reserve policy and economic expectations → Treasury and MBS markets → MBS yields and spreads → lender pricing → mortgage rates offered to borrowers.
That is why mortgage rates can sometimes decline before an FOMC rate cut, rise after a rate cut or move sharply on a day when the Federal Reserve has changed no policy setting at all.
Investozora’s broader explanation of how the Federal Reserve controls interest rates covers the difference between the Fed’s direct control over overnight rates and its indirect influence on longer-term borrowing costs.
Why Are Federal Reserve MBS Holdings Still Falling in 2026?
This is where current Federal Reserve policy differs from the previous quantitative-tightening regime. The latest balance-sheet runoff began in June 2022. Under that program, the Fed allowed Treasury and agency securities to mature or pay down without fully replacing them, subject to monthly limits.
The Federal Reserve’s official policy-normalization history reports that from the beginning of balance-sheet reduction in June 2022 through the end of runoff, total securities holdings declined by more than $2.2 trillion. That included approximately $1.6 trillion of Treasury securities and $600 billion of agency MBS.
On October 29, 2025, however, the FOMC announced that it would stop the decline in aggregate securities holdings beginning December 1, 2025. That did not mean the Fed would keep its MBS holdings permanently fixed.
Instead, the policy changed from reducing the overall portfolio to changing its composition. The FOMC’s July 29, 2026 implementation note instructed the New York Fed’s Desk to roll over all principal payments from Treasury holdings while reinvesting all principal payments from agency securities into Treasury bills.
That means: MBS principal is returned → the Fed does not replace that principal with new MBS → the money is reinvested into Treasury bills instead.
The MBS portfolio can therefore decline even though those dollars remain inside the Fed’s broader securities portfolio. That is fundamentally different from allowing the money to disappear from securities holdings altogether.
The 2026 Balance Sheet Shows MBS Being Replaced by Treasury Bills
The clearest evidence appears in the Fed’s own 2026 reporting. In its July 2026 Monetary Policy Report discussion of the Federal Reserve balance sheet, the Board reported that the SOMA portfolio had purchased nearly $250 billion in Treasury bills since early January 2026 through July 1.
Approximately $160 billion represented reserve-management purchases, while another $90 billion represented reinvestments of principal payments from agency MBS. This provides an important answer to one of the most easily misunderstood Federal Reserve balance-sheet questions:
Falling MBS holdings do not necessarily mean the total Fed balance sheet is falling. In 2026, MBS principal payments can reduce the MBS balance while simultaneously increasing the Fed’s Treasury-bill holdings.
The August H.4.1 release illustrates the shift. Compared with August 20, 2025, the Fed’s MBS holdings were approximately $186 billion lower, while Treasury securities were approximately $340 billion higher as of August 19, 2026. The correct interpretation is therefore not simply “the Fed is selling mortgages.”
It is closer to: The Federal Reserve is gradually allowing mortgage securities to pay down while redirecting those proceeds toward Treasury securities.
For readers who want the earlier runoff mechanics in greater detail, Investozora’s guide to quantitative tightening and the Federal Reserve balance sheet explains how the 2022–2025 balance-sheet reduction worked.
Is the Federal Reserve Selling Its MBS Portfolio?
Not in the way the phrase “selling off the portfolio” might imply. The current decline is primarily driven by principal payments from the mortgages underlying the securities.
An MBS does not necessarily remain at the same outstanding principal balance until a single maturity date. Homeowners continually make scheduled principal payments, and some borrowers pay loans off early when they refinance or sell their homes.
Those principal payments reduce the remaining balance of the securities. The FOMC’s current instructions redirect the returned principal into Treasury bills instead of agency securities.
The August 19 H.4.1 supplemental MBS table reported $156 million of commitments to sell MBS, but that small figure should not be confused with a broad active liquidation of a portfolio approaching $2 trillion.
Why Do MBS Run Off Differently From Treasury Securities?
Treasury securities and mortgage-backed securities have fundamentally different cash-flow structures. A conventional Treasury security has a defined maturity schedule. MBS cash flows are partly dependent on homeowner behavior. Borrowers can:
- make scheduled principal payments;
- pay additional principal;
- refinance into a different mortgage;
- sell the property and repay the existing mortgage; or
- keep a low-rate mortgage for many years.
That makes prepayment risk one of the defining characteristics of mortgage-backed securities. The Federal Reserve’s detailed study of the evolution of its agency MBS holdings explains that prepayment is an embedded option available to mortgage borrowers and that refinancing historically has been an important source of early repayment. Interest rates therefore affect not only the value of MBS but also how quickly principal may return.
How Higher Mortgage Rates Slowed the Fed’s MBS Runoff
The 2022–2024 runoff provides a useful real-world example. The Fed initially allowed agency securities to run off subject to a monthly cap that eventually reached $35 billion. But that cap often did not bind.
Federal Reserve staff calculated that between June 2022 and June 2024, monthly redemptions of SOMA agency MBS averaged only about $18 billion, and total holdings fell roughly $450 billion over that period, substantially less than the theoretical maximum had the cap been fully used every month.
Why? Much of the Fed’s portfolio consisted of mortgages carrying interest rates far below prevailing market mortgage rates. A homeowner with a 3% mortgage has little financial incentive to refinance into a new mortgage at a substantially higher rate solely to reduce borrowing costs.
Federal Reserve staff reported in June 2024 that more than 90% of SOMA agency MBS holdings had coupons below 4%, leaving much of the portfolio well out of the money for refinancing at the mortgage rates prevailing at that time. This is closely related to what is often called the mortgage lock-in effect.
Homeowners may also hesitate to sell a property when doing so would mean surrendering a low-rate mortgage and financing another home at a substantially higher rate. Slower refinancing and reduced housing turnover can therefore slow MBS principal payments.
Could Falling Mortgage Rates Speed Up MBS Paydowns?
Potentially, but the relationship is not automatic. If market mortgage rates fall far enough below the rates attached to existing mortgages, more borrowers may find refinancing financially attractive. Refinancing repays the old loan, which sends principal back through the MBS structure.
That can accelerate principal payments from the Federal Reserve’s MBS portfolio. However, the actual effect depends on the coupon distribution of the securities, borrower characteristics, home sales, house prices, loan age and other variables.
Federal Reserve researchers modeled this question in their agency MBS portfolio analysis and found that principal payments are sensitive to interest rates but that even a lower-rate scenario did not necessarily produce a dramatic near-term change because so much of the portfolio consisted of deeply below-market mortgage coupons. So a decline in mortgage rates does not automatically imply an immediate surge in Fed MBS runoff.
What Happens to MBS When Interest Rates Rise?
Higher interest rates can affect MBS in at least two important ways. First, existing fixed-rate securities generally become less attractive relative to newly issued bonds offering higher yields. Their market values can fall.
Second, higher mortgage rates often reduce refinancing activity. That can extend the expected life, or duration, of existing mortgage securities because borrowers remain in their mortgages longer.
This creates a distinctive risk for MBS investors. When rates fall, borrowers may refinance and return principal sooner than expected. When rates rise, refinancing can disappear and investors may receive below-market cash flows for longer than expected.
This is one reason MBS investors demand compensation above comparable Treasury securities. It is also one reason Federal Reserve purchases of MBS can influence mortgage-market risk premiums rather than merely mirroring movements in Treasury yields.
Face Value Is Not the Same as Market Value
Another common mistake is to assume that the Fed’s reported $1.931 trillion MBS balance means those securities could necessarily be sold today for exactly $1.931 trillion.
That is not what the H.4.1 figure means. The Federal Reserve’s supplemental MBS disclosure explicitly identifies the reported MBS amount as current face value, meaning the remaining principal balance of the securities.
Market value can be different because bond prices move as interest rates, spreads, expected prepayments and market conditions change. This distinction is particularly important when evaluating claims about Federal Reserve gains, losses or the hypothetical proceeds from selling securities.
MBS Holdings Versus Treasury Holdings
Treasuries and agency MBS are both major Federal Reserve assets, but they expose the portfolio to different cash-flow characteristics.
| Feature | U.S. Treasury Securities | Agency MBS |
|---|---|---|
| Underlying obligation | U.S. government debt | Pools of mortgage loans |
| August 19, 2026 Fed holdings | $4.542 trillion | $1.931 trillion |
| Mortgage prepayment risk | No | Yes |
| Principal timing | Primarily contractual maturity | Scheduled principal plus prepayments |
| Direct housing-market connection | Indirect | Strong |
| Current principal treatment | Rolled over | Reinvested into Treasury bills |
The Fed’s July 2026 Monetary Policy Report explicitly connected current Treasury-bill reinvestments with the Committee’s longer-term intention to hold primarily Treasury securities in SOMA.
That makes the ongoing decline in MBS holdings more than an accounting curiosity. It is gradually changing the asset composition of the Federal Reserve’s portfolio.
How Large Is the Decline From the 2022 MBS Peak?
Federal Reserve staff reported that SOMA agency MBS holdings reached approximately $2.7 trillion in mid-2022. The August 19, 2026 H.4.1 balance was approximately $1.931 trillion.
Using the rounded $2.7 trillion historical figure as the comparison point: $2.700 trillion − $1.931 trillion = approximately $769 billion. That represents an approximate decline of: $769 billion ÷ $2.700 trillion × 100 = 28.5%
from the mid-2022 level. This is an Investozora calculation using a rounded historical Federal Reserve figure and the current H.4.1 balance. Because the $2.7 trillion historical figure is itself rounded, the 28.5% result should be treated as an approximate comparison rather than an official Federal Reserve statistic.
Does a Smaller Fed MBS Portfolio Automatically Mean Higher Mortgage Rates?
No. A shrinking Fed MBS portfolio can remove one source of demand from the mortgage securities market, and Federal Reserve research supports the broader proposition that large-scale MBS holdings and purchases can place downward pressure on MBS yields and mortgage rates.
But mortgage rates are determined by many variables at once. For example, mortgage rates could decline while Fed MBS holdings are falling if:
- Treasury yields decline;
- inflation expectations fall;
- investors become more willing to own MBS;
- MBS spreads narrow;
- markets expect easier future monetary policy; or
- broader economic conditions weaken.
Mortgage rates could likewise rise while the Fed’s MBS balance barely changes. The safest interpretation is therefore that Federal Reserve MBS holdings are one important component of mortgage-market financial conditions, not a standalone mortgage-rate forecasting tool. Readers focused specifically on household borrowing costs can continue with Investozora’s guide to the Federal Reserve and mortgage rates.
What Do Federal Reserve MBS Holdings Mean for Homebuyers?
For a homebuyer, the most useful conclusion is not “Fed MBS down = mortgage rates up.” The relationship is more complex. A prospective borrower should understand that mortgage rates reflect a combination of:
Treasury yields + expected Federal Reserve policy + inflation expectations + MBS spreads and risk premiums + mortgage-market supply and demand + lender-specific pricing. Federal Reserve MBS policy can influence several parts of that system, but it does not override all of them.
There is therefore usually no reason for an individual borrower to make a mortgage decision solely because the Federal Reserve’s weekly MBS balance increased or decreased. The more relevant question is how the broader fixed-income market is reacting to inflation, economic data and expectations for monetary policy.
How Can Readers Track Federal Reserve MBS Holdings?
The most authoritative public starting point is the Fed’s H.4.1, Factors Affecting Reserve Balances release. The Federal Reserve says the H.4.1 data are generally released each Thursday at 4:30 p.m. Eastern Time, although publication can shift around federal holidays.
For MBS specifically, readers should look at: Table 1: overall securities held outright. Table 2: maturity distribution of securities. Table 3: supplemental information on mortgage-backed securities. Table 5: consolidated Federal Reserve balance sheet.
The New York Fed’s agency MBS operations database provides another layer of information, including operation results and historical transaction resources.
These primary sources are more useful for tracking actual Federal Reserve policy than relying on unsourced claims that “the Fed is buying mortgages” or “the Fed is dumping MBS.”
What Should Readers Watch Next?
Three developments matter most. The weekly H.4.1 MBS balance. This shows whether the remaining principal balance of Fed-held mortgage securities is continuing to decline and at what pace. Future FOMC implementation instructions. The current policy of reinvesting agency-security principal into Treasury bills is not immutable.
The FOMC could change its balance-sheet strategy. The latest July 29, 2026 FOMC implementation instructions remain the controlling source for the current reinvestment framework.
Mortgage rates and refinancing activity. A meaningful change in mortgage rates can alter refinancing incentives and therefore affect how quickly principal is returned from mortgage-backed securities.
But the large volume of low-coupon mortgages inside the Fed’s portfolio means the relationship may not respond immediately to relatively small mortgage-rate movements.
How much mortgage-backed securities does the Federal Reserve own?
As of August 19, 2026, the Federal Reserve held approximately $1.931 trillion in mortgage-backed securities, according to its August 20 H.4.1 balance-sheet release. Roughly $1.923 trillion of that amount consisted of residential MBS, while only a small portion was commercial mortgage-backed securities.
These holdings remain one of the largest asset categories on the Fed’s balance sheet. The size of the portfolio matters because changes in Fed MBS holdings can influence mortgage-market liquidity, MBS yields and broader housing-finance conditions.
Are Federal Reserve MBS holdings still declining?
Yes. The Fed’s MBS balance on August 19, 2026 was approximately $186 billion lower than one year earlier, showing that the portfolio is still gradually shrinking. However, this decline does not mean the Fed is simply selling hundreds of billions of dollars of mortgage securities into the market.
Principal payments received from agency MBS are currently being redirected into Treasury bills instead of being reinvested into new MBS. As mortgages are repaid, refinanced or otherwise prepaid, the Fed’s MBS balance can therefore continue declining over time.
Is the Federal Reserve still doing quantitative tightening?
Not in the same form as the quantitative-tightening program that began in 2022. The FOMC stopped the decline in its aggregate securities holdings beginning December 1, 2025, ending the broad balance-sheet runoff phase.
However, the composition of the portfolio can still change because principal received from agency MBS is reinvested into Treasury bills. That means MBS holdings can fall while Treasury holdings rise, even if the Fed’s overall securities portfolio is no longer being deliberately reduced.
Does the Fed directly control mortgage rates?
No. The Federal Reserve directly controls short-term monetary-policy settings such as the target range for the federal funds rate, but it does not set the interest rate lenders charge on 15-year or 30-year mortgages.
Mortgage rates are influenced by Treasury yields, inflation expectations, expected future Fed policy, MBS yields and spreads, investor demand, credit conditions and lender pricing.
Fed policy can influence many of these factors, which is why mortgage rates often react strongly to Federal Reserve decisions and economic data. However, mortgage rates can move higher or lower even when the Fed makes no change to its policy rate.
Why did the Fed buy mortgage-backed securities?
The Federal Reserve bought large amounts of agency MBS during periods of severe economic and financial stress, particularly after the 2008 financial crisis and during the COVID-19 pandemic.
The objective was to support mortgage-market functioning, provide additional monetary accommodation and put downward pressure on longer-term borrowing costs.
By becoming a major buyer of MBS, the Fed reduced the amount of mortgage-related duration and prepayment risk that private investors had to absorb. Federal Reserve research has found that these large-scale asset purchases helped reduce MBS yields and mortgage rates through mechanisms including portfolio rebalancing.
Does the Fed own my mortgage?
Generally, not in the way a homeowner would normally understand ownership of a mortgage. The Federal Reserve owns mortgage-backed securities containing claims on cash flows generated by large pools of mortgages, rather than directly servicing individual borrowers’ loans.
Your mortgage lender or servicing company normally remains responsible for collecting payments, issuing statements and handling the loan account. A homeowner therefore does not usually make mortgage payments directly to the Federal Reserve simply because the underlying loan may be included in an agency MBS held by the Fed.
What happens when homeowners repay mortgages backing Fed-owned MBS?
When homeowners make principal payments, refinance their mortgages or pay off their loans after selling a home, some of that principal flows through the mortgage-backed security to its investors. Because the Federal Reserve holds agency MBS, it receives its share of those principal payments through the securities it owns.
Under the current FOMC policy, that returned principal is not used to replace the maturing MBS with new mortgage securities. Instead, the Fed reinvests those agency-security principal payments into Treasury bills, gradually shifting the composition of its portfolio from MBS toward Treasuries.
Could lower mortgage rates make the Fed’s MBS holdings fall faster?
Potentially, yes. If mortgage rates fall far enough below the rates homeowners currently pay, refinancing becomes more attractive, causing older mortgages to be repaid earlier and returning principal to MBS investors faster.
That could accelerate the decline of the Federal Reserve’s MBS portfolio under the current policy of reinvesting those principal payments into Treasury bills.
However, the effect depends on how far rates fall, the coupon rates of mortgages inside the Fed’s MBS portfolio, housing turnover and borrower behavior. Because much of the portfolio contains relatively low-rate mortgages, a modest decline in market mortgage rates may not be enough to produce a major refinancing wave.
Bottom Line
The Federal Reserve held approximately $1.931 trillion in mortgage-backed securities as of August 19, 2026, making MBS nearly 30% of its securities held outright.
Those holdings remain economically important because Federal Reserve purchases and portfolio holdings can influence the supply of mortgage securities available to private investors, MBS risk premiums, MBS yields and ultimately mortgage-market financing conditions.
But three distinctions are essential. First, the Fed does not directly set mortgage rates. Second, a declining MBS portfolio does not automatically mean mortgage rates must rise.
Third, and most importantly for understanding the current balance sheet, the continuing decline in Fed MBS holdings is not the same as the broad quantitative-tightening program that ran from 2022 through 2025.
The Federal Reserve’s current policy directs principal payments from agency securities into Treasury bills. Its July 2026 Monetary Policy Report shows this process already operating at substantial scale, with approximately $90 billion of Treasury-bill purchases through July 1 attributed to reinvested agency MBS principal.
The result is a gradual transformation of the Federal Reserve portfolio: less mortgage-backed securities, more Treasury securities, and an overall balance sheet managed around an ample-reserves framework rather than the previous runoff regime. For readers following monetary policy, that distinction is the key to interpreting Federal Reserve MBS holdings correctly in 2026.
