An Econometric Approach to the FNMA Free Market System Auction

Mike Miles and R. Stephen Sears

Journal of Financial and Quantitative Analysis, 1981, vol. 16, issue 2, 177-192

Abstract: In the last few years, several innovations have appeared in mortgage finance which are designed to improve the flow of funds into mortgage lending. Among this group, The Federal National Mortgage Association (FNMA) remains the intermediary which handles the largest share of most mortgage lenders' placements. As a private corporation chartered by Congress and owned by stockholders, FNMA provides a national secondary market facility for government-backed (FHA/VA) and conventional mortgages. Through its secondary market operations, FNMA furnishes a source of liquidity for mortgage lenders with the major portion of this support provided through the Free Market System (FMS) auctions. Through its issuance of forward purchase commitments, the FNMA assures lenders of a permanent investor (at a set yield) for specified periods of time, regardless of changing money market and housing conditions.

Date: 1981
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