Variance rule
Variance rule
Variance Rule
a forward contract on a mortgage-backed security. The seller agrees to deliver the MBSs for an agreed upon price and agreed upon date (usually 48 hours after the contract is made) but makes no guarantee as to which or how many securities are to be delivered. Generally speaking, the seller delivers the amount of mortgage-backed securities that equal the market value of the selling price at the time of delivery. However, the variance rule places a limit on how much this can vary from the market value of the securities at the time the TBA occurs. This reduces the risk for both the buyer and the seller.