EconPapers    
Economics at your fingertips  
 

The Terminations Premium in Mortgage Coupon Rates: Evidence on the Integration of Mortgage and Bond Markets

Patric Hendershott and Kevin E. Villani

No 738, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: During the Last three years mortgage rates have risen relative to yields on comparable maturity bonds. The questions addressed in the present paper are what is the extent of this increase and to what is it attributable? We find the increase between early 198 and early 1981 in coupon rates on GNMA mortgage pools relative to ''the" rate on a comparable portfolio of Treasury bonds to be about 100 basis points. We attribute the increase to a rise in the terminations premia built into mortgage coupon rates. The premia is the price borrowers are charged for the option to repay the mortgage when it is to their benefit (to refinance if interest rates decline). This price has risen in response to an increase in interest rate uncertainty. Our empirical results suggest that the increase is due to both greater uncertainty regarding the inflation premium in interest rates and the lesser weight the monetary authorities give to interest rate stability in their deliberations.

Date: 1981-08
Note: ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published as Hendershott, Patric H. and Kevin E. Villani. "Measurement of Spreads between Yields on Various Mortgage Contracts and Treasury Securities." Journal of the American Real Estate and Urban Economic Association, (Winter 1984), pp. 476-490. James Shilling added as co-author.

Downloads: (external link)
http://www.nber.org/papers/w0738.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:0738

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w0738

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2025-03-31
Handle: RePEc:nbr:nberwo:0738