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A Reconsideration of the Jumbo/Non-jumbo Mortgage Rate Differential

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  • McKenzie, Joseph A

Abstract

Consistent with a series of recent papers, the interest-rate differential between mortgages eligible for purchase based on loan size by Fannie Mae and Freddie Mac and larger loans is estimated to be 22 basis points over the 1986-2000 period. This differential averaged 19 basis points for the 1996-2000 period. Other significant effects include: loans slightly above the conforming loan limit and originated late in a calendar year often have a lower rate that nearly fully anticipates their likely characterization as a non-jumbo loan after the conforming loan limit is indexed effective each January; loan-to-value ratios affect jumbo loan rates much more than they affect non-jumbo loan rates; loans located in non-metropolitan areas have a 3 basis point differential versus loans in metropolitan areas that is surprisingly small given the likely higher cost to service non-metropolitan loans and the higher degree of uncertainty about non-metropolitan collateral values; and estimated regional mortgage rate differentials have narrowed through time. Copyright 2002 by Kluwer Academic Publishers

Suggested Citation

  • McKenzie, Joseph A, 2002. "A Reconsideration of the Jumbo/Non-jumbo Mortgage Rate Differential," The Journal of Real Estate Finance and Economics, Springer, vol. 25(2-3), pages 197-213, Sept.-Dec.
    • Handle: RePEc:kap:jrefec:v:25:y:2002:i:2-3:p:197-213
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    Cited by:

    1. Lawrence J. White & W. Scott Frame, 2004. "Emerging Competition and Risk-Taking Incentives at Fannie Mae and Freddie Mac," Working Papers 04-02, New York University, Leonard N. Stern School of Business, Department of Economics.
    2. John M. Quigley, 2006. "Federal credit and insurance programs: housing," Review, Federal Reserve Bank of St. Louis, vol. 88(Jul), pages 281-310.
    3. Xudong An & Raphael W. Bostic, 2006. "Have the Affordable Housing Goals been a Shield against Subprime? Regulatory Incentives and the Extension of Mortgage Credit," Working Paper 8572, USC Lusk Center for Real Estate.
    4. W. Scott Frame & Diana Hancock & Wayne Passmore, 2012. "Federal Home Loan Bank Advances and Commercial Bank Portfolio Composition," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(4), pages 661-684, June.
    5. James Vickery & Joshua Wright, 2013. "TBA trading and liquidity in the agency MBS market," Economic Policy Review, Federal Reserve Bank of New York, vol. 19(May), pages 1-18.
    6. Pedro Gete & Franco Zecchetto, 2018. "Distributional Implications of Government Guarantees in Mortgage Markets," The Review of Financial Studies, Society for Financial Studies, vol. 31(3), pages 1064-1097.
    7. Lynn M. Fisher & Mike Fratantoni & Stephen D. Oliner & Tobias J. Peter, 2021. "Jumbo rates below conforming rates: When did this happen and why?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 49(S2), pages 461-489, September.
    8. Gillian Burgess & Wayne Passmore & Shane M. Sherlund, 2005. "The effect of housing government-sponsored enterprises on mortgage rates," Finance and Economics Discussion Series 2005-06, Board of Governors of the Federal Reserve System (U.S.).
    9. Robert Eisenbeis & W. Frame & Larry Wall, 2007. "An Analysis of the Systemic Risks Posed by Fannie Mae and Freddie Mac and An Evaluation of the Policy Options for Reducing Those Risks," Journal of Financial Services Research, Springer;Western Finance Association, vol. 31(2), pages 75-99, June.
    10. Dungey, Mardi & Doko Tchatoka, Firmin & Yanotti, María B., 2018. "Endogeneity in household mortgage choice," Economic Modelling, Elsevier, vol. 73(C), pages 30-44.
    11. Xudong An & Raphael Bostic, 2008. "GSE Activity, FHA Feedback, and Implications for the Efficacy of the Affordable Housing Goals," The Journal of Real Estate Finance and Economics, Springer, vol. 36(2), pages 207-231, February.
    12. W. Scott Frame & Lawrence J. White, 2007. "Charter Value, Risk-Taking Incentives, and Emerging Competition for Fannie Mae and Freddie Mac," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(1), pages 83-103, February.
    13. W. Scott Frame & Lawrence J. White, 2005. "Fussing and Fuming over Fannie and Freddie: How Much Smoke, How Much Fire?," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 159-184, Spring.
    14. Alexei Alexandrov & Thomas S. Conkling & Sergei Koulayev, 2024. "Changing the Scope of GSE Loan Guarantees: Estimating Effects on Mortgage Pricing and Availability," The Journal of Real Estate Finance and Economics, Springer, vol. 69(3), pages 409-451, October.
    15. Zhao, Yunhui, 2016. "Got Hurt for What You Paid? Revisiting Government Subsidy in the U.S. Mortgage Market," MPRA Paper 81083, University Library of Munich, Germany, revised 01 Aug 2017.
    16. Olsen, Edgar O. & Zabel, Jeffrey E., 2015. "US Housing Policy," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 887-986, Elsevier.
    17. W. Scott Frame, 2009. "The 2008 federal intervention to stabilize Fannie Mae and Freddie Mac," FRB Atlanta Working Paper 2009-13, Federal Reserve Bank of Atlanta.

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