Gse Impact on Rural Mortgage Markets

Abstract

This paper examines the degree of integration between rural and metropolitan mortgage markets and addresses three fundamental questions regarding the rural mortgage market. First, does a jumbo/conforming loan rate differential exist in the rural mortgage market, and if so, to what extent do Fannie Mae and Freddie Mac contribute to lowering rural conforming mortgage rates? Second, to what extent are rural and urban mortgage markets integrated? Third, what risk factors contribute to changes in rural and urban mortgage credit spreads? The results from our analysis confirm that the conforming rural market is closely tied to the conforming urban market, while the jumbo rural market is less closely tied to the jumbo urban market. We interpret this as evidence that GSE involvement in the rural market, while a relatively small portion of the overall GSE business, is, nevertheless, serving to provide rural conforming mortgage borrowers with improved access to credit, especially when compared to rural jumbo borrowers.

Keywords: Government Sponsored Enterprise, mortgage markets