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

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Author Info
Brent W. Ambrose
Michael LaCour-Little
Anthony B. Sanders

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Abstract

The magnitude of the effect of government-sponsored enterprise purchases on primary mortgage market rates has been a difficult research question with differing data and competing methodologies producing varying results. Here we present a new approach using loan level data and controlling for credit risk differentials between conforming and nonconforming loans. Our method also addresses econometric problems of endogeneity and sample selection bias. We find that conforming loans have yield spreads about 5.5% lower compared to other loans on a risk-adjusted basis. This is lower than previous estimates appearing in the literature. Copyright 2004 by the American Real Estate and Urban Economics Association

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1080-8620.2004.00102.x
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Publisher Info
Article provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.

Volume (Year): 32 (2004)
Issue (Month): 4 (December)
Pages: 541-569
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Handle: RePEc:bla:reesec:v:32:y:2004:i:4:p:541-569

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=1080-8620

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  3. Robert A. Eisenbeis & W. Scott Frame & Larry D. Wall, 2006. "An analysis of the systemic risks posed by Fannie Mae and Freddie Mac and an evaluation of the policy options for reducing those risks," Working Paper 2006-02, Federal Reserve Bank of Atlanta. [Downloadable!]
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  4. Philip Strahan, 2008. "Liquidity Production in 21st Century Banking," NBER Working Papers 13798, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. W. Scott Frame & Diana Hancock & Wayne Passmore, 2007. "Federal Home Loan Bank advances and commercial bank portfolio composition," Finance and Economics Discussion Series 2007-31, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  9. Giang Ho & Anthony Pennington-Cross, 2006. "Predatory lending laws and the cost of credit," Working Papers 2006-022, Federal Reserve Bank of St. Louis. [Downloadable!]
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  10. W. Scott Frame & Diana Hancock & Wayne Passmore, 2007. "Federal Home Loan Bank advances and commercial bank portfolio composition," Working Paper 2007-17, Federal Reserve Bank of Atlanta. [Downloadable!]
  11. Elena Loutskina & Philip E. Strahan, 2006. "Securitization and the Declining Impact of Bank Finance on Loan Supply: Evidence from Mortgage Acceptance Rates," NBER Working Papers 11983, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Andreas Lehnert & Wayne Passmore & Shane M. Sherlund, 2006. "GSEs, mortgage rates, and secondary market activities," Finance and Economics Discussion Series 2006-30, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  13. Andreas Lehnert & Wayne Passmore & Shane M. Sherlund, 2005. "GSEs, mortgage rates, and secondary market activities," Finance and Economics Discussion Series 2005-07, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  14. W. Scott Frame & Lawrence J. White, 2004. "Fussing and fuming over Fannie and Freddie: how much smoke, how much fire?," Working Paper 2004-26, Federal Reserve Bank of Atlanta. [Downloadable!]
  15. Giang Ho & Anthony Pennington-Cross, 2005. "The impact of local predatory lending laws," Working Papers 2005-049, Federal Reserve Bank of St. Louis. [Downloadable!]
  16. Brent Ambrose & Michael LaCour-Little & Anthony Sanders, 2005. "Does Regulatory Capital Arbitrage, Reputation, or Asymmetric Information Drive Securitization?," Journal of Financial Services Research, Springer, vol. 28(1), pages 113-133, October. [Downloadable!] (restricted)
  17. W. Scott Frame, 2009. "The 2008 federal intervention to stabilize Fannie Mae and Freddie Mac," Working Paper 2009-13, Federal Reserve Bank of Atlanta. [Downloadable!]
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