A New Spin on the Jumbo/Conforming Loan Rate Differential

Brent W. Ambrose, Richard Buttimer, Thomas Thibodeau

Research output: Contribution to journalArticle

16 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)309-335
Number of pages27
JournalJournal of Real Estate Finance and Economics
Volume23
Issue number3
DOIs
StatePublished - Dec 1 2001

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics
  • Urban Studies

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