The Origins and Evolution of the Market for Mortgage-Backed Securities

39 Pages Posted: 15 May 2011 Last revised: 23 Jul 2011

See all articles by John J. McConnell

John J. McConnell

Purdue University

Stephen A. Buser

Ohio State University (OSU) - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: May 13, 2011


The first mortgage backed security (MBS) was issued in 1968. Thereafter, the MBS market grew rapidly with outstanding issuance's exceeding $9 trillion by 2010. The growth in the MBS market was accompanied by numerous innovations such as the collateralized mortgage obligations (CMOs) and the emergence of private label alternatives to MBS issued by government sponsored entities. We trace the evolution of the MBS market and we review debates surrounding such questions as whether the MBS market has reduced the cost of housing finance, whether the MBS market is a market for lemons, and what role, if any, MBS played in the run-up and subsequent decline of home prices during the decade of the 2000s. We also detail the evolution of models for MBS valuation as developed by academics and practitioners.

Keywords: collateralized mortgage obligations, subprime, mortgage agency

JEL Classification: G21, G24, E24

Suggested Citation

McConnell, John J. and Buser, Stephen, The Origins and Evolution of the Market for Mortgage-Backed Securities (May 13, 2011). Annual Review of Financial Economics, Vol. 3, 2011. Available at SSRN: or

John J. McConnell (Contact Author)

Purdue University ( email )

403 West State St.
West Lafayette, IN 47907-2056
United States
765-494-5910 (Phone)
765-494-7863 (Fax)

Stephen Buser

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-292-5719 (Phone)

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