WASHINGTON - A study by the Federal Reserve Board suggests that, counter to prevailing belief, the existence of a secondary mortgage market does little to lower interest rates for homebuyers.

A model constructed by the authors of the report found that the increased liquidity enjoyed by lenders that have access to a secondary market was not passed on to borrowers in the form of lower rates. Because the securitizer sets the underwriting standard for loans it will accept and the rates it pays for mortgage-backed securities, the authors argue, lenders' liquidity premium is realized mainly when they serve borrowers who have higher credit quality.

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