A New Spin on the Jumbo/Conforming Loan Rate Differential

Brent Ambrose, Richard Buttimer and Thomas Thibodeau ()

The Journal of Real Estate Finance and Economics, 2001, vol. 23, issue 3, 309-35

Abstract: This article uses house-price transaction data to estimate volatility in house prices. The volatility parameter is an input into a mortgage-pricing model that is used to simulate the contract interest rate that balances the mortgage contract. By segmenting the house-price transaction into high- and low-valued homes, we are able to estimate a theoretical jumbo/conforming loan rate differential. Simulation results demonstrate that the differences in volatility between high- and low-priced homes can produce a contract loan rate differential, holding all else constant. The article also presents a discussion of the problems inherent to estimating volatilities form assets with infrequent trades and long holding periods. Copyright 2001 by Kluwer Academic Publishers

Date: 2001
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