A reverse repurchase (repo) agreement by which a mortgage firm sells federally guaranteed mortgage-backed securities (MBSs) to a securities dealer and agrees to repurchase them at a prespecified price on a future date. This agreement covers the so-called gestation period (the time between the date an issuer files documents to the federal agency, e.g., GNMA, for the final pool approval and the date the new MBS is issued).

While the mortgage firm is accumulating the mortgages loans, and before the MBS is actually issued, this type of repo is often known as a “ gestation repurchase agreement”. Once the security is issued, the agreement is typically referred to as a“ repurchase agreement.” Most firms charge a higher interest rate for a gestation repurchase agreement. Once the MBS is issued, the interest rate is reduced.

This type of repurchase agreement (repo) is also known as a gestation-period repurchase agreement or or a whole loan repurchase agreement.