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

69 Pages Posted: 10 May 2019 Last revised: 20 Aug 2020

See all articles by Yesol Huh

Yesol Huh

Board of Governors of the Federal Reserve System - Division of Research and Statistics

You Suk Kim

Board of Governors of the Federal Reserve System

Date Written: August 10, 2020

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 22 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 (August 10, 2020). 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 - Division of Research and Statistics ( email )

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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

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