The Mortgage Rate Conundrum

36 Pages Posted: 10 Nov 2017 Last revised: 29 Sep 2021

See all articles by Alejandro Justiniano

Alejandro Justiniano

Federal Reserve Bank of Chicago

Giorgio E. Primiceri

Northwestern University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Andrea Tambalotti

Federal Reserve Bank of New York

Multiple version iconThere are 4 versions of this paper

Date Written: August, 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, mortgage loans, securitization, private label, subprime

JEL Classification: G21, H81, O18

Suggested Citation

Justiniano, Alejandro and Primiceri, Giorgio E. and Tambalotti, Andrea, The Mortgage Rate Conundrum (August, 2017). FRB of Chicago Working Paper No. WP-2017-23, Available at SSRN: https://ssrn.com/abstract=3068670

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

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Andrea Tambalotti

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
42
Abstract Views
487
PlumX Metrics