GSEs,Mortgage Rates,and Secondary Market Activities |
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Authors: | Andreas Lehnert Wayne Passmore Shane M Sherlund |
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Institution: | (1) Board of Governors of the Federal Reserve System, Washington, DC, USA |
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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 mortgage rates. This empirical
finding is robust to alternative identification assumptions and to alternative model and variable specifications.
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Keywords: | Mortgage finance Government-sponsored enterprises Financial stability |
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