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Keywords:Secondary mortgage market 

Journal Article
Bridging the information gap between capital markets investors and CDFIs
Proceedings of the Conference on the Secondary Market for Community Development Loans The problem of efficiently matching buyer and seller is both ancient and ubiquitous. It is, of course, the source of the concepts of brokerage and intermediation. The situation in which sellers are small, traditional and local and buyers large, sophisticated, and national or, indeed, global, is an especially difficult one to get right?especially from the perspective of the sellers. But it is also the situation in which modern technology may be most useful. This ancient dilemma resembles the problem of connecting the CDFI industry to the capital markets. The vast majority of CDFIs are small and local, and, to the extent anything can be traditional in an industry barely twenty-five years old, traditional in the sense that they are structured as vertically integrated portfolio lenders heavily reliant on low-cost funding. The capital markets are huge, efficient, market-based, and global. Even the most sophisticated CDFIs find them difficult and often frustrating to access. The disconnect exists on a number of levels, including scale, structure, and systems. But as important as these items are, the lack of understanding by potential buyers and sellers of each others? needs may be a bigger barrier. In other words?and this was repeated many times during the September 2006, Secondary Markets Conference sponsored jointly by the Federal Reserve Bank of San Francisco and the Federal Reserve Board of Governors?information asymmetry may be at least as much a barrier as scale, structure, and systems.
AUTHORS: Seidman, Ellen
DATE: 2006

Working Paper
Did the Federal Reserve's MBS purchase program lower mortgage rates?
We employ empirical pricing models for mortgage-backed security (MBS) yields and for mortgage rates to measure deviations from normal market functioning in order to assess how the Federal Reserve MBS purchase program--a 16 month program announced on November 25, 2008 and completed on March 31, 2010--affected risk premiums that were embedded in mortgage and swap markets. Our pricing models suggest that the announcement of the program, which signaled strong and credible government backing for mortgage markets in particular and for the financial system more generally, reduced mortgage rates by about 85 basis points between November 25 and December 31, 2008, even though no MBS had (yet) been purchased by the Federal Reserve ; Once the Federal Reserve's MBS program started purchasing MBS, we estimate that the abnormal risk premiums embedded mortgage rates decreased roughly 50 basis points. However, observed mortgage rates declined only slightly because of generally rising interest rates. ; After May 27, 2009 fairly normal pricing conditions existed in U.S. primary and secondary mortgage markets; that is, the relationship between mortgage rates and its determinants was similar to that observed prior to the financial crisis. After the end of the Federal Reserve's MBS purchase program on March 31, 2010, mortgage rates and interest rates more generally were significantly less than they had been at the beginning. ; In sum, we estimate that the Federal Reserve's MBS purchase program removed substantial risk premiums embedded in mortgage rates because of the financial crisis. The Federal Reserve also re-established a robust secondary mortgage market, which meant that the marginal mortgage borrower was funded by the capital markets and not directly by the banks during the financial crisis-had bank funding been the only source of funds, primary mortgage rates would have been much higher. ; Lastly, many observers have attributed part of the Federal Reserve's effect from purchasing MBS to portfolio rebalancing. We find that if portfolio rebalancing had a substantial effect, it may have had its greatest importance only after the Federal Reserve's purchases ended, but while the Federal Reserve held a substantial portion of the stock of outstanding MBS.
AUTHORS: Hancock, Diana; Passmore, Wayne
DATE: 2011

Opening remarks at The Spread between Primary and Secondary Mortgage Rates: Recent Trends and Prospects Workshop
Remarks at The Spread between Primary and Secondary Mortgage Rates: Recent Trends and Prospects Workshop, New York City.
AUTHORS: Dudley, William
DATE: 2012

A new look at second liens
We use data from credit reports and deed records to better understand the extent to which second liens contributed to the housing crisis by allowing buyers to purchase homes with small down-payments. At the top of the housing market, second liens were quite prevalent: As many as 45 percent of home purchases in coastal markets and bubble locations involved a piggyback second lien. Owner-occupants were more likely to use piggyback second liens than were investors. Second liens in the form of home equity lines of credit (HELOCs) were originated to relatively high-quality borrowers, and originations were declining near the peak of the housing boom. By contrast, characteristics of closed-end second liens (CES) were worse on all these dimensions. Default rates of second liens are generally similar to that of the first lien on the same home, although HELOCs perform better than CES. About 20 to 30 percent of borrowers will continue to pay their second lien for more than a year while remaining seriously delinquent on their first mortgage. By comparison, about 40 percent of credit card borrowers and 70 percent of auto loan borrowers will continue making payments a year after defaulting on their first mortgage. Finally, we show that delinquency rates on second liens, especially HELOCs, have not declined as quickly as those on most other types of credit, raising a potential concern for lenders with large portfolios of second liens on their balance sheets.
AUTHORS: Mayer, Christopher J.; Tracy, Joseph; Lee, Donghoon
DATE: 2012