Gses, Mortgage Rates, and Secondary Market Activities

66 Pages Posted: 1 Feb 2005

See all articles by Andreas Lehnert

Andreas Lehnert

Board of Governors of the Federal Reserve

S. Wayne Passmore

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

Shane M. Sherlund

Federal Reserve Board of Governors

Multiple version iconThere are 2 versions of this paper

Date Written: September 8, 2006

Abstract

Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) that purchase mortgages and issue mortgage-backed securities (MBS). In addition, the GSEs are active participants in the primary and secondary mortgage markets on behalf of their own portfolios of MBS. Because these portfolios have grown quite large, portfolio purchases as well as MBS issuance are likely to be important forces in the mortgage market. This paper examines the statistical evidence of a connection between GSE actions and the interest rates paid by mortgage borrowers. We find that both portfolio purchases and MBS issuance have negligible effects on mortgage rate spreads and that purchases are not any more effective than securitization at reducing mortgage interest rate spreads. We also examine the 1998 liquidity crisis and find that GSE portfolio purchases did little to affect interest rates paid by borrowers. These results are robust to alternative assumptions about causality and to model specification.

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

JEL Classification: G18, G21

Suggested Citation

Lehnert, Andreas and Passmore, Stuart Wayne and Sherlund, Shane M., Gses, Mortgage Rates, and Secondary Market Activities (September 8, 2006). FEDS Working Paper No. 2005-07; FEDS Working Paper No. 2006-30. Available at SSRN: https://ssrn.com/abstract=658281 or http://dx.doi.org/10.2139/ssrn.658281

Andreas Lehnert

Board of Governors of the Federal Reserve ( email )

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

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)

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