Transaction that closes an open TBA or delivery position with an offsetting trade instead of security delivery.
A TBA pair-off is a transaction that closes an open TBA or delivery position with an offsetting trade instead of completing the position through security delivery.
A TBA pair-off matters because expected mortgage production and actual deliverable securities do not always match. Loans can fall out, close late, change products, or fail delivery requirements, leaving a lender with more committed MBS exposure than eligible collateral.
The lender or market participant can enter an opposite trade with matching characteristics and settle the price difference. If the market moved favorably, the pair-off can produce a gain; if it moved adversely, it can create a cost. Investor or commitment rules determine the actual calculation and fees.
Borrowers see only the front-end issues such as lock deadlines, extensions, relocks, cancellation, or changed loan terms. A lender’s pair-off result is not automatically a borrower fee. Any borrower charge must arise from the applicable lock agreement, disclosure, and loan terms.
Borrowers do not usually see TBA pair-off language. It appears in lender secondary-market and pipeline management.
The term becomes practical when explaining why a lender cares whether locked loans close as expected and why fallout can create economic consequences behind the scenes.
| Step | Market action |
|---|---|
| Original position | Participant agrees to buy or sell a defined TBA category for settlement |
| Delivery mismatch | Available pools or expected production no longer fit the position |
| Offset | Participant enters the opposite trade for matching terms and amount |
| Net settlement | Price difference and applicable charges are settled without delivering that paired amount |
A partial pair-off can resolve only the undeliverable portion while the remaining amount settles normally. A full pair-off closes the entire position.
| Event | Why a pair-off might be considered |
|---|---|
| Loan fallout | Expected delivery no longer exists |
| Closing delay | Timing no longer matches the market position |
| Loan change | Delivered loan may not match expected characteristics |
| Hedge adjustment | The lender needs to offset excess or mismatched exposure |
A lender expected $5 million of qualifying production and sold a matching TBA position at 101.00. Only $4 million becomes deliverable, so the lender pairs off the $1 million shortfall by buying back the same TBA category at 100.50.
Ignoring other adjustments, the 0.50 price difference equals $5,000 on $1 million of face amount. Had the offset price risen to 101.50, the same mismatch would instead create a $5,000 cost.
TBA pair-off differs from TBA Settlement because settlement completes the expected trade with eligible pools, while pair-off offsets the position.
It differs from Dollar Roll because a dollar roll moves similar exposure across settlement months, while a pair-off resolves an offsetting mismatch.
It also differs from Mandatory Commitment because mandatory commitment is a delivery obligation, while pair-off is one way a mismatched or unfulfilled position may be resolved.