A New Spin on the Jumbo/Conforming Loan Rate Differential

A New Spin on the Jumbo/Conforming Loan Rate Differential This article uses house-price transaction data to estimate volatility in house prices. The volatility parameter is an input into a mortgage-pricing model that is used to simulate the contract interest rate that balances the mortgage contract. By segmenting the house-price transaction into high- and low-valued homes, we are able to estimate a theoretical jumbo/conforming loan rate differential. Simulation results demonstrate that the differences in volatility between high- and low-priced homes can produce a contract loan rate differential, holding all else constant. The article also presents a discussion of the problems inherent to estimating volatilities form assets with infrequent trades and long holding periods. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

A New Spin on the Jumbo/Conforming Loan Rate Differential

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2001 by Kluwer Academic Publishers
Subject
Economics; Regional/Spatial Science; Financial Services
ISSN
0895-5638
eISSN
1573-045X
D.O.I.
10.1023/A:1017900103243
Publisher site
See Article on Publisher Site

Abstract

This article uses house-price transaction data to estimate volatility in house prices. The volatility parameter is an input into a mortgage-pricing model that is used to simulate the contract interest rate that balances the mortgage contract. By segmenting the house-price transaction into high- and low-valued homes, we are able to estimate a theoretical jumbo/conforming loan rate differential. Simulation results demonstrate that the differences in volatility between high- and low-priced homes can produce a contract loan rate differential, holding all else constant. The article also presents a discussion of the problems inherent to estimating volatilities form assets with infrequent trades and long holding periods.

Journal

The Journal of Real Estate Finance and EconomicsSpringer Journals

Published: Oct 3, 2004

References

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