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The Mortgage Rate Conundrum

32 Pages Posted: 11 Sep 2017  

Alejandro Justiniano

Federal Reserve Bank of Chicago

Giorgio E. Primiceri

Northwestern University - Department of Economics; National Bureau of Economic Research (NBER)

Andrea Tambalotti

Federal Reserve Bank of New York

Multiple version iconThere are 2 versions of this paper

Date Written: September 2017

Abstract

We document the emergence of a disconnect between mortgage and Treasury interest rates in the summer of 2003. Following the end of the Federal Reserve expansionary cycle in June 2003, mortgage rates failed to rise according to their historical relationship with Treasury yields, leading to significantly and persistently easier mortgage credit conditions. We uncover this phenomenon by analyzing a large dataset with millions of loan-level observations, which allows us to control for the impact of varying loan, borrower and geographic characteristics. These detailed data also reveal that delinquency rates started to rise for loans originated after mid 2003, exactly when mortgage rates disconnected from Treasury yields and credit became relatively cheaper.

Keywords: Credit boom, housing boom, private label, Securitization, subprime.

Suggested Citation

Justiniano, Alejandro and Primiceri, Giorgio E. and Tambalotti, Andrea, The Mortgage Rate Conundrum (September 2017). CEPR Discussion Paper No. DP12265. Available at SSRN: https://ssrn.com/abstract=3031902

Alejandro Justiniano (Contact Author)

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

Giorgio E. Primiceri

Northwestern University - Department of Economics ( email )

2003 Sheridan Road
Evanston, IL 60208
United States

HOME PAGE: http://faculty.econ.northwestern.edu/faculty/primiceri

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Andrea Tambalotti

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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