Abstract

http://ssrn.com/abstract=298379
 
 

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The Effect of Conforming Loan Status on Mortgage Yield Spreads: A Loan Level Analysis


Brent W. Ambrose


Pennsylvania State University

Michael LaCour-Little


California State University at Fullerton

Anthony B. Sanders


George Mason University - School of Management

November 12, 2002

Dice Center Working Paper No. 2001-1

Abstract:     
The magnitude of the effect of government-sponsored enterprise purchases on primary mortgage market rates has been a difficult research question to answer with differing data and competing methodologies producing different results. In this paper we present a new approach using loan level data and controlling for any credit risk differential between conforming and non-conforming loans. Our method also addresses econometric problems of endogeneity and sample selection bias. We find that conforming loans have yields spread about 2.6% lower (4.5 basis points) on a risk-adjusted basis compared to other loans. This is lower than previous estimates appearing in the literature and may result from the greater precision available in our loan level dataset that allows us to control for credit risk.

Note: Previously titled "Credit Spreads: Evidence from the Mortgage Market"

Number of Pages in PDF File: 37

Keywords: Mortgage yield spreads, securitization, government-sponsored enterprise

JEL Classification: G1, G21

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Date posted: February 1, 2002  

Suggested Citation

Ambrose, Brent W. and LaCour-Little, Michael and Sanders, Anthony B., The Effect of Conforming Loan Status on Mortgage Yield Spreads: A Loan Level Analysis (November 12, 2002). Dice Center Working Paper No. 2001-1. Available at SSRN: http://ssrn.com/abstract=298379 or http://dx.doi.org/10.2139/ssrn.298379

Contact Information

Brent W. Ambrose
Pennsylvania State University ( email )
University Park, PA 16802-3306
United States
814-867-0066 (Phone)
814-865-6284 (Fax)
Michael LaCour-Little
California State University at Fullerton ( email )
5133 Mihaylo Hall
Fullerton, CA 92834-6848
United States
657-278-4014 (Phone)
657-278-2161 (Fax)
Anthony Bown Sanders (Contact Author)
George Mason University - School of Management ( email )
Fairfax, VA 22030
United States
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