A Reconsideration of the Jumbo/Non-Jumbo Mortgage Rate Differential

A Reconsideration of the Jumbo/Non-Jumbo Mortgage Rate Differential Consistent with a series of recent papers, the interest-rate differential between mortgages eligible for purchase based on loan size by Fannie Mae and Freddie Mac and larger loans is estimated to be 22 basis points over the 1986–2000 period. This differential averaged 19 basis points for the 1996–2000 period. Other significant effects include: loans slightly above the conforming loan limit and originated late in a calendar year often have a lower rate that nearly fully anticipates their likely characterization as a non-jumbo loan after the conforming loan limit is indexed effective each January; loan-to-value ratios affect jumbo loan rates much more than they affect non-jumbo loan rates; loans located in non-metropolitan areas have a 3 basis point differential versus loans in metropolitan areas that is surprisingly small given the likely higher cost to service non-metropolitan loans and the higher degree of uncertainty about non-metropolitan collateral values; and estimated regional mortgage rate differentials have narrowed through time. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

A Reconsideration of the Jumbo/Non-Jumbo Mortgage Rate Differential

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2002 by Kluwer Academic Publishers
Subject
Economics; Regional/Spatial Science; Financial Services
ISSN
0895-5638
eISSN
1573-045X
D.O.I.
10.1023/A:1016525725585
Publisher site
See Article on Publisher Site

Abstract

Consistent with a series of recent papers, the interest-rate differential between mortgages eligible for purchase based on loan size by Fannie Mae and Freddie Mac and larger loans is estimated to be 22 basis points over the 1986–2000 period. This differential averaged 19 basis points for the 1996–2000 period. Other significant effects include: loans slightly above the conforming loan limit and originated late in a calendar year often have a lower rate that nearly fully anticipates their likely characterization as a non-jumbo loan after the conforming loan limit is indexed effective each January; loan-to-value ratios affect jumbo loan rates much more than they affect non-jumbo loan rates; loans located in non-metropolitan areas have a 3 basis point differential versus loans in metropolitan areas that is surprisingly small given the likely higher cost to service non-metropolitan loans and the higher degree of uncertainty about non-metropolitan collateral values; and estimated regional mortgage rate differentials have narrowed through time.

Journal

The Journal of Real Estate Finance and EconomicsSpringer Journals

Published: Oct 18, 2004

References

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