A New Spin on the Jumbo/Conforming Loan Rate Differential

Posted: 24 Apr 2002

See all articles by Brent W. Ambrose

Brent W. Ambrose

Pennsylvania State University

Richard J. Buttimer

University of North Carolina (UNC) at Charlotte - Department of Finance & Business Law

Thomas G. Thibodeau

University of Colorado at Boulder - Leeds School of Business

Abstract

This paper 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 transactions 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 paper also presents a discussion of the problems inherent to estimating volatilities from assets with infrequent trades and long holding periods.

Keywords: Mortgages, Government Sponsored Enterprises, Mortgage Rate Spreads, House Price Volatility

Suggested Citation

Ambrose, Brent W. and Buttimer, Richard J. and Thibodeau, Thomas G., A New Spin on the Jumbo/Conforming Loan Rate Differential. The Journal of Real Estate Finance & Economics, Vol. 23, No. 3. Available at SSRN: https://ssrn.com/abstract=302004

Brent W. Ambrose (Contact Author)

Pennsylvania State University ( email )

University Park, PA 16802-3306
United States
814-867-0066 (Phone)
814-865-6284 (Fax)

Richard J. Buttimer

University of North Carolina (UNC) at Charlotte - Department of Finance & Business Law ( email )

9201 University City Blvd.
Charlotte, NC 28223
United States
704 687-6219 (Phone)

Thomas G. Thibodeau

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

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