It stands for to-be-announced mortgage backed security; a type of mortgage backed security (MBS) that denotes forward-settling of MBS trades (i.e., settlement in the forward market as TBA trades). A majority of MBSs (agency MBSs) are traded in the to-be-announced (TBA) market, which puts trades of heterogeneous MBS into a few liquid TBA contracts. Lenders segregate mortgage loans of similar brackets of values into separate pools. Low-value MBS tend to trade in the TBA market and high-value MBS outside the TBA market.

The agency TBA forward market allows mortgage originators to mitigate their interest rate risk via hedging. Originators of both agency and non-agency mortgages tap into the agency market to hedge the volatility of interest rates between the time that a mortgage rate is “locked in” and when it is closed and securitized.

Mitigating this volatility can have a positive effect on mortgage rates, which constitute one component of the overall cost of a mortgage. The TBA market helps reduce the total mortgage costs— mainly consisting of the interest rate element.