48-Hour Rule

And what is this 48 hour rule

48-hour rule is a requirement that sellers will be announced mortgage-backed securities (MBS) to report all information pool in respect of transactions by buyers before 3pm est 48 hours prior to the date of settlement of the trade. The securities industry and financial markets Association (SIFMA) ensures compliance with this rule. SIFMA was formerly known as the Association public securities Association or Bond market.

Breaking down the ’48 hour rule ‘

48-hour rule was created to bring transparency to-be-announced (TBA) trade calculations. The TBA market transactions with mortgage securities (MBS). During a TBA transaction, a specific MBS, the seller shall deliver to the buyer not determined.

In a TBA trade is actually a contract for the purchase or sale of mortgage-backed securities (MBS) on a specific date. It does not include information about the number pool, number of pools or precise amount involved in the transaction. This exclusion of data because of the market, tva provided that MBS pools are more or less interchangeable.

Process TBA benefit of buyers and sellers, as it increases the liquidity of the market for mortgage-backed securities, taking thousands of different MBS with different characteristics and to trade them through the number of contracts. Buyers and sellers of TBA transactions to agree on some essential parameters, such as maturity by the Issuer, coupon, price, par amount and settlement date. The specific securities involved in the trade announced 48 hours before arrival.

Suppose that the agreed settlement date between the buyer and the seller is on July 14. 48-hour rule requires that on July 12 at 3 PM est, the seller informed the buyer about the exact details of the MBS that will be delivered on July 14. This two-day period is also known as 48-hour day.

Mortgage-Backed Securities

MBS is a bond that is secured, or backed, mortgage loans. Loans with similar traits are grouped in the pool. The pool is then sold to stand as collateral for the corresponding MBS. The results of interest and principal to investors in the amount based on the principal and interest payments made by borrowers of the underlying mortgages. Investors receive interest payments monthly, not every six months.

The TBA market was established in the 1970-ies to facilitate the trading of MBS issued by Fannie Mae, Freddie Mac and Ginnie Mae. This allows mortgage originators to hedge their origination pipelines. The TBA market is the most liquid secondary mortgage market, resulting in high levels of market activity. In fact, the amount of money traded in the TBA market is the second largest in the market of US treasuries.

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