For most of us in the MBS markets, the process of mortgage securitization is assumed to begin with the mortgage rate as the independent variable. Rarely does our thought process focus on the fact that issues and developments in the MBS markets may lead to the determination of the mortgage rate as a dependent variable of capital market dynamics. This paper will examine the links between the rates consumers are charged for residential mortgage loans and the role of capital markets instruments, and demonstrate that capital market dynamics heavily influence the rate generation process.

Determination of mortgage rates

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