originating and servicing mortgages. bis central bankers ’ speeches power over home affordable refinance program ( harp ) refinance loans and pricing power on other loans. it finds that capacity constraints play a role and that there is evidence to suggest that originators enjoy pricing power and elevated profits on harp and other refinancings. i encourage everyone to take a look at this paper. it represents a good starting point for today ’ s discussion. however, as the authors are the first to acknowledge, the increase in the primary - secondary spread and the underlying changes in originator costs and profits remain something of a puzzle. i hope today ’ s discussion will further deepen our collective understanding of this important issue. to sum up, for monetary policy to be as effective as possible in supporting economic recovery in a context of price stability it is imperative that the key channels of the monetary policy transmission mechanism are operating as effectively as possible. the financial crisis and the housing bust created headwinds to the recovery in part through adverse impacts on the mechanisms of monetary policy transmission. the topic of today ’ s workshop is important for understanding how to gauge and potentially improve the transmission of monetary policy to the household sector. it is important that we correctly identify and to the greatest extent possible quantify the forces that have been acting on the primary - secondary spread. this requires bringing a broad range of informed perspectives to the table, perspectives that many of you have. for this workshop to succeed, we need for you to be as open, frank and precise in your discussions today as possible. president rosengren and i thank you for your participation in this effort and we look forward to the key findings from the workshop. bis central bankers ’ speeches

increased substantially. following the september fomc meeting it rose above 150 basis points. a spike in the spread following a decision to ease monetary policy is not surprising because the primary market may be slower to react. the spread has since retraced to its pre - september fomc meeting level of about 120 basis points. however, the spread remains elevated by historic standards. an important objective of this workshop is to gain a deeper and clearer understanding of the determinants of the primary - secondary spread and its dynamics over time. this spread is influenced by a number of elements, such as the valuation attached to the right to service the mortgages underlying the security, and the annual guarantee fee that is paid to cover the credit guarantee provided by the government - sponsored enterprises ( gses ). the observed widening of the primary - secondary spread likely reflects many factors. part of this widening is due to higher annual agency guarantee fees which are a necessary and overdue re - pricing of the credit guarantee provided to investors. while these guarantee fees differ by mortgage and by seller, the average effective guarantee fee has increased from 20 to 25 basis points to around 50 basis points today. but this still leaves a significant part of the spread left to be explained by other factors such as changes in originators ’ costs and profits. as you all know, the primary - secondary spread is a technically imperfect measure of the pass - through from primary rates to secondary rates. a new study1, by authors including new york fed staff, adjusts for these factors to come up with a measure of originator2 profits and unmeasured costs, or opucs. the basic picture remains the same, with opucs at historically elevated levels. the paper evaluates a number of potential factors that could help explain this increase. these include the decline in the value of mortgage servicing rights, credit losses and other costs associated with put - back risk, possible changes in pipeline hedging costs and other loan production expenses. it finds a potentially material role for the decline in the value of mortgage servicing rights in particular, but concludes that the increase in the aggregate measure of profits and unmeasured costs is “ not likely to be driven exclusively or even mostly by increase in costs ”. this suggests that originator profits may have increased. the study examines a number of potential explanations. these include capacity constraints, market concentration, pricing the rising gap between primary and secondary mortgage rates. we interpret originator to include all actors involved in