GSEs, mortgage rates, and secondary market activities

Andreas Lehnert (), Wayne Passmore and Shane Sherlund ()

No 2006-30, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) that securitize mortgages and issue mortgage-backed securities (MBS). In addition, the GSEs are active participants in the secondary mortgage market on behalf of their own investment portfolios. Because these portfolios have grown quite large, portfolio purchases (in addition to MBS issuance) are often thought to be an important force in the mortgage market. Using monthly data from 1993 to 2005 we estimate a VAR model of the relationship between GSE secondary market activities and mortgage interest rate spreads. We find that GSE portfolio purchases have no significant effects on either primary or secondary mortgage rate spreads. Further, we examine GSE activities and mortgage rate spreads in the wake of the 1998 debt crisis, and find that GSE portfolio purchases did little to affect interest rates paid by new mortgage borrowers. This empirical finding is robust to alternative identification assumptions and to alternative model and variable specifications.

Keywords: Government-sponsored enterprises; Secondary markets (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-fin, nep-fmk and nep-ure
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Related works:
Journal Article: GSEs, Mortgage Rates, and Secondary Market Activities (2008)
Working Paper: GSEs, mortgage rates, and secondary market activities (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2006-30

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