MSCI Primary - Secondary Mortgage Spread Model
categories: Risk Management Analytics, Factor and Risk Modeling, Risk Management, YU Yihai, general
tags: mortgage, spread, model, primary, secondary,
This paper describes the MSCI Primary/Secondary Mortgage Spread Model.
Home purchases in US are mostly funded by the capital market. Borrowers get mortgages from lenders, paying interest at a primary mortgage rate. These loans are usually securitized into agency mortgage-backed securities (MBS) in the secondary market, in which the daily current coupon yield can be computed. The spread between the primary mortgage rate and the MBS yield is called the primary/secondary (P/S) spread. The P/S spread consists of a GSE guarantee-fee and lender cost/profit.