The Real Effects of Secondary Market Trading Structure: Evidence from the Mortgage Market

64 Pages Posted: 10 May 2019 Last revised: 14 Jun 2021

See all articles by Yesol Huh

Yesol Huh

Board of Governors of the Federal Reserve System

You Suk Kim

Board of Governors of the Federal Reserve System

Date Written: May 19, 2021

Abstract

By allowing different agency mortgage-backed securities (MBS) to be traded based on limited characteristics, the to-be-announced (TBA) market generates liquidity and benefits the MBS market broadly. We quantify effects of the TBA structure on mortgage borrowers. Exploiting discontinuities in TBA eligibility, we estimate that TBA eligibility reduces mortgage rates by 7 to 28 basis points. TBA eligibility benefit is larger for mortgages with higher expected prepayments. We also find that TBA eligibility affects refinancing, which has implications for monetary policy transmission. Our finding is relevant for policies such as housing finance reforms and Uniform MBS.

Keywords: mortgage-backed securities, liquidity, primary market, TBA trades, refinancing, mortgages

JEL Classification: E44, G10, G21

Suggested Citation

Huh, Yesol and Kim, You Suk, The Real Effects of Secondary Market Trading Structure: Evidence from the Mortgage Market (May 19, 2021). Available at SSRN: https://ssrn.com/abstract=3373949 or http://dx.doi.org/10.2139/ssrn.3373949

Yesol Huh

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
(202) 973-6943 (Phone)

HOME PAGE: http://sites.google.com/site/yesolhuh

You Suk Kim (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
137
Abstract Views
1,185
rank
283,089
PlumX Metrics