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The Demand and Supply of Mortgage Funds and Mortgage Loan Terms

Author

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  • Leonard V. Zumpano
  • Patricia M. Rudolph
  • David C. Cheng

Abstract

The supply of and demand for residential mortgages has been the subject of much discussion in the literature. Many of these studies have used single equation, partial adjustment models with the price specified as the contract rate. In this study, two of the assumptions that underlie these previous studies are tested empirically. First, the proper specification of the price of mortgage funds is tested by using both the contract rate alone and all of the terms of the mortgage as the price. Second, the speed of adjustment in the mortgage market is examined by estimating the model in both the instantaneous adjustment and partial adjustment forms. Both of these tests are carried out using a simultaneous equation rather than a single equation model. The empirical results indicate that the contract rate along with the loan initiation fees, the loan‐to‐value ratio and the maturity is the better specification of price and that the partial adjustment model performs better than the instantaneous model in the mortgage market.

Suggested Citation

  • Leonard V. Zumpano & Patricia M. Rudolph & David C. Cheng, 1986. "The Demand and Supply of Mortgage Funds and Mortgage Loan Terms," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 14(1), pages 91-109, March.
    • Handle: RePEc:bla:reesec:v:14:y:1986:i:1:p:91-109
    DOI: 10.1111/1540-6229.00371
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    References listed on IDEAS

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    1. Baltensperger, Ernst, 1978. "Credit Rationing: Issues and Questions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 10(2), pages 170-183, May.
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    Cited by:

    1. He, D., 2014. "The effects of macroprudential policies on housing market risks: evidence from Hong Kong," Financial Stability Review, Banque de France, issue 18, pages 105-120, April.
    2. Eric Wong & Andrew Tsang & Steven Kong, 2016. "How Does Loan-To-Value Policy Strengthen Resilience of Banks to Property Price Shocks - Evidence from Hong Kong," International Real Estate Review, Global Social Science Institute, vol. 19(1), pages 120-149.
    3. Eric Wong & Andrew Tsang & Steven Kong, 2014. "How Does Loan-To-Value Policy Strengthen Banks' Resilience to Property Price Shocks - Evidence from Hong Kong," Working Papers 032014, Hong Kong Institute for Monetary Research.
    4. Ebrahim, M. Shahid & Mathur, Ike, 2007. "Pricing home mortgages and bank collateral: A rational expectations approach," Journal of Economic Dynamics and Control, Elsevier, vol. 31(4), pages 1217-1244, April.
    5. International Monetary Fund, 2016. "Slovak Republic: Selected Issues," IMF Staff Country Reports 2016/014, International Monetary Fund.
    6. Eric Wong & Kelvin Ho & Andrew Tsang, 2015. "Effectiveness of Loan-To-Value Ratio Policy and Its Transmission Mechanism ¨C Empirical Evidence from Hong Kong," Working Papers 202015, Hong Kong Institute for Monetary Research.

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