GSEs, Mortgage Rates, and Secondary Market Activities

Posted: 20 Oct 2007 Last revised: 18 Aug 2009

See all articles by Andreas Lehnert

Andreas Lehnert

Board of Governors of the Federal Reserve

Shane M. Sherlund

Federal Reserve Board of Governors

S. Wayne Passmore

Board of Governors of the Federal Reserve - Household and Real Estate Finance Section

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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 activites 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.

Keywords: mortgage finance, government-sponsored enterprises, financial stability

Suggested Citation

Lehnert, Andreas and Sherlund, Shane M. and Passmore, Stuart Wayne, GSEs, Mortgage Rates, and Secondary Market Activities. Journal of Real Estate Finance and Economics, Vol. 36, No. 3, 2008. Available at SSRN: https://ssrn.com/abstract=1022989

Andreas Lehnert

Board of Governors of the Federal Reserve ( email )

Washington, DC 20551
United States
202-452-3325 (Phone)
202-263-4852 (Fax)

Shane M. Sherlund

Federal Reserve Board of Governors ( email )

20th and C Streets, NW
Mailstop 93
Washington, DC 20551
United States
202-452-3589 (Phone)
202-728-5887 (Fax)

Stuart Wayne Passmore (Contact Author)

Board of Governors of the Federal Reserve - Household and Real Estate Finance Section ( email )

Washington, DC 20551
United States
202-452-6432 (Phone)
202-452-3819 (Fax)

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