What is a '48-Hour Rule '

The 48-hour rule is a requirement that sellers of to-be-announced mortgage-backed securities (MBS) communicate all pool information regarding the transactions to buyers before 3 p.m. EST 48 hours before the settlement date of the trade. The Securities Industry And Financial Markets Association (SIFMA) enforces this rule. SIFMA was formerly known as the Public Securities Association or Bond Market Association.

BREAKING DOWN '48-Hour Rule '

The 48-hour rule was created to bring transparency to to-be-announced (TBA) trade settlements. The TBA market deals with mortgage-backed securities (MBS). At the time a TBA trade is made, the specific MBS that the seller will deliver to the buyer is not designated.

A TBA trade is effectively a contract to buy or sell mortgage-backed securities (MBS) on a specific date. It does not include information regarding the pool number, the number of pools or the exact amount involved in the transaction. This exclusion of data is due to the TBA market assuming that MBS pools are more or less interchangeable. 

The TBA process benefits buyers and sellers because it increases the liquidity of the MBS market by taking thousands of different MBS with different characteristics and trading them through a handful of contracts. Buyers and sellers of TBA trades agree on a few necessary parameters such as issuer maturity, coupon, price, par amount and settlement date. The specific securities involved in the trade are announced 48-hours before the settlement.

Assume that the agreed upon settlement date between the buyer and the seller is July 14. The 48-hour rule requires that on July 12 by 3 p.m. EST the seller will have informed the buyer of the exact details of the MBS that will be delivered on July 14. This two-day period is also known as the 48-hour day.

Mortgage-Backed Securities

An MBS is a bond that is secured, or backed, by mortgage loans. Loans with similar traits are grouped to form a pool. The pool is then sold to stand as collateral for the associated MBS. The issuance of interest and principal payments to investors is at a rate based on the principal and interest payments made by the borrowers of the underlying mortgages. Investors receive interest payments on a monthly basis rather than semiannually.

The TBA market was established in the 1970s to facilitate the trading of MBS issued by Fannie Mae, Freddie Mac, and Ginnie Mae. It allows mortgage lenders to hedge their origination pipelines. The TBA market is the most liquid secondary market for mortgage loans, resulting in high levels of market activity. In fact, the amount of money traded on the TBA market is second only to the U.S. Treasury market.

  1. To Be Announced - TBA

    To be announced is a phrase used to describe a forward-settling ...
  2. Drop

    A drop is the price difference between when an investor sells ...
  3. Mortgage Allocations

    Mortgage allocation is a step in the settlement of to-be-announced ...
  4. Pool Factor

    The pool factor is a measure of how much of the original loan ...
  5. Agency MBS Purchase

    Agency MBS purchase is most commonly used to refer to the U.S. ...
  6. Vintage

    Vintage is a slang term used by mortgage-backed securities (MBS) ...
Related Articles
  1. Investing

    Profiting Off of Increased Mortgage Rates (PTRIX,FMSFX,VMBSX)

    Learn why mutual funds that invest in mortgage-backed securities (MBS) are worth a look for investors wanting to capitalize on rising mortgage interest rates.
  2. Investing

    Top Mortgage-Backed Securities ETFs

    Investing in mortgage-backed securities has many advantages, but studying their history may make you wary.
  3. Investing

    Top 3 Mortgage Backed Securities (MBS) ETFs (MBB, MBG)

    Discover some of the best opportunities for investors seeking exposure to mortgage-backed securities through utilizing exchange-traded funds.
  4. Investing

    Asset-backed and mortgage-backed securities: An introduction

    Learn more about the structure of asset-and mortgage-backed securities, securities backed by pools of mortgage or non-mortgage assets, along with some examples of ABS, MBS and their valuations. ...
  5. Investing

    MBB: iShares Barclays MBS Bond Fund ETF Analysis

    Explore the iShares MBS ETF and see how this fund composed of agency-issued mortgage debt compares to similar ETFs in the category.
  6. Investing

    Asset Allocation In A Bond Portfolio

    An investor's fixed-income portfolio can easily beat the average bond fund. Learn how and why!
  7. Investing

    VBMFX: Overview of World's Largest Bond Mutual Fund

    VBMFX: Find out top positions in the world's largest bond fund, the Vanguard Total Bond Market Index Fund.
  8. Investing

    A Smart Idea for Mortgage Bonds

    This old mortgage bond ETF is undergoing a transformation – and getting cheaper.
  9. Investing

    Credit Suisse to Pay $5.3 Billion to End MBS Suit

    For the second time in as many days, a major European bank has reached a financial settlement with the U.S. Justice Department. Credit Suisse (NYSE: CS) will pay a total of nearly $5.3 billion ...
  1. What are the benefits of an assumable mortgage?

    An assumable mortgage allows the purchaser of a property to assume the mortgage from the property's seller. The benefits ... Read Answer >>
Trading Center