What is ‘Mortgage Allocations’

Mortgage allocation is a step in settlement of to-be-announced trades on mortgage-backed securities. At assignment, the seller provides the buyer with precise details of the loans that make up the underlying pool of the security trading.

BREAKING DOWN ‘Mortgage Allocations’

Mortgage allocation is the process by which a seller of mortgage-backed securities (MBS), details the loans which make up security traded on the to-be-announced (TBA) market. Approximately 90-percent of Freddie Mac, Fannie Mae, and Ginnie Mac pass-through securities trade on the TBA marketplace. This trade makes it the most important secondary market for mortgage securities. It is second only to the U.S. Treasury market in fixed-income trading volume and is subject to rulemaking by the Securities Industry and Financial Markets Association, known as SIFMA.

When a buyer and a seller agree on a TBA trade, they fundamentally agree to the terms of a contract. The parties agree on the issuer, maturity, coupon, price and par amounts of the traded securities. Beyond these criteria,…