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GSEs, Mortgage Rates, and Secondary Market Activities

  • Andreas Lehnert

    ()

  • Wayne Passmore

    ()

  • Shane Sherlund

    ()

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.

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File URL: http://hdl.handle.net/10.1007/s11146-007-9047-5
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Article provided by Springer in its journal The Journal of Real Estate Finance and Economics.

Volume (Year): 36 (2008)
Issue (Month): 3 (April)
Pages: 343-363

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Handle: RePEc:kap:jrefec:v:36:y:2008:i:3:p:343-363
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  1. Naranjo, Andy & Toevs, Alden, 2002. "The Effects of Purchases of Mortgages and Securitization By Government Sponsored Enterprises on Mortgage Yield Spreads and Volatility," The Journal of Real Estate Finance and Economics, Springer, vol. 25(2-3), pages 173-95, Sept.-Dec.
  2. Andreas Lehnert & Wayne Passmore & Shane M. Sherlund, 2006. "GSEs, mortgage rates, and secondary market activities," Finance and Economics Discussion Series 2006-30, Board of Governors of the Federal Reserve System (U.S.).
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