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

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  • Brent W. Ambrose
  • Michael LaCour-Little
  • Anthony B. Sanders

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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Bibliographic 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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