%0 Journal Article %A Gloria González-Rivera %T Linkages Between Secondary and Primary Markets for Mortgages %B The Role of Retained Portfolio Investments of the Government-Sponsored Enterprises %D 2001 %R 10.3905/jfi.2001.319291 %J The Journal of Fixed Income %P 29-36 %V 11 %N 1 %X The author analyzes the role of the retained portfolio investments of the government-sponsored enterprises, FNMA and FHLMC. The retained portfolio is shown to be a powerful instrument to influence yield spreads in the secondary and primary markets for mortgages. The long-run investment function links mortgage yields to the volume of their portfolio investments, guaranteeing that the spread cannot diverge indefinitely. A one basis point increase in the spread is estimated to produce an infusion of $554 million in the secondary market. When there is a deviation from long-run equilibrium investment levels, short- run dynamics (changes in purchases and spread) are set in motion to correct the disequilibrium. These benefits are passed directly to the homeowner. There is a one-to-one transmission mechanism; a reduction of one 1 bp in the secondary market spread reduces the primary market spread by 1 bp, rendering these markets efficient. %U https://jfi.pm-research.com/content/iijfixinc/11/1/29.full.pdf