The Effects of Purchases of Mortgages and Securitization by Government Sponsored Enterprises on Mortgage Yield Spreads and Volatility

GSEs, Mortgage Rates, and Secondary Market Activities

“…By contrast, our results contradict those reported in Naranjo and Toevs (2002). Naranjo and Toevs find that mortgage rate spreads are negatively correlated with GSE secondary market activities, while we find a positive relationship; Naranjo and Toevs find a positive relationship between the jumbo-conforming spread and GSE secondary market activities, while we find, if anything at all, a negative relationship.…”

“…Our paper is similar to the study of Naranjo and Toevs (2002), who estimate a long-run cointegrating relationship between GSE portfolio purchases and mortgage rate spreads. In contrast with our results, they conclude that GSE portfolio purchases lower primary mortgage rate spreads and that portfolio purchases lower primary mortgage rates more than MBS issuance.…”

“…A.2 Naranjo and Toevs (2002) In their paper, Naranjo and Toevs (2002) also posit a cointegrating relationship between mortgage market spreads and GSE activities. 10 Naranjo and Toevs use mortgage rate data from the FHFB's Monthly Interest Rate Survey (MIRS) and can therefore distinguish between jumbo and conforming mortgage rates.…”

GSE Activity, FHA Feedback, and Implications for the Efficacy of the Affordable Housing Goals

“…Freeman and Galster (2004) examine underserved neighborhoods in Cleveland between 1993 and 1999 to see if GSE 1 Hendershott and Shilling (1989), Cotterman and Pearce (1996), Ambrose et al (2001), ICF (1990), US Congressional Budget Office (2001), Naranjo and Toevs (2002), Passmore et al (2002) and , among many others, have shown that GSE activities are related to substantial mortgage rate reductions. See McKenzie (2002) and Sanders (2005) for surveys of the literature.…”

GSEs, Mortgage Rates, and Secondary Market Activities

“…A cointegration study by Naranjo and Toevs (2002) uses data covering 1986-98 and concludes that GSE securitization activity and portfolio purchases are associated with lower spreads between conforming mortgage interest rates and comparable Treasury interest rates.…”