A New Spin on the Jumbo/Conforming Loan Rate Differential

Brent W. Ambrose; Richard Buttimer; Thomas Thibodeau

doi:10.1023/A:1017900103243

A New Spin on the Jumbo/Conforming Loan Rate Differential

Brent W. Ambrose, Richard Buttimer, Thomas Thibodeau

Risk Management

Research output: Contribution to journal › Article › peer-review

20 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 language	English (US)
Pages (from-to)	309-335
Number of pages	27
Journal	Journal of Real Estate Finance and Economics
Volume	23
Issue number	3
DOIs	https://doi.org/10.1023/A:1017900103243
State	Published - 2001

All Science Journal Classification (ASJC) codes

Accounting
Finance
Economics and Econometrics
Urban Studies

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10.1023/A:1017900103243

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title = "A New Spin on the Jumbo/Conforming Loan Rate Differential",

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.",

author = "Ambrose, {Brent W.} and Richard Buttimer and Thomas Thibodeau",

note = "Funding Information: Financial support for this project was provided b y a grant from the Mortgage Bankers Association of America. The views expressed in this article are those of the authors and should not be interpreted as those of the MBAA.",

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AU - Thibodeau, Thomas

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N2 - 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.

AB - 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.

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A New Spin on the Jumbo/Conforming Loan Rate Differential

Abstract

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