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Integration of mortgage and capital markets and the accumulation of residential capital

  • Hendershott, Patric H.
  • Van Order, Robert

The securitization of fixed-rate mortgages suggests that the FRA/VA market was fully integrated with capital markets by the early l98Os and that the conventional market moved toward integration during the l98Os. Assuming full integration of FHA/VA5 via the GNMA securitization process, we first estimate equations explaining near-par GNMA prices weekly for the 1981-88 period. The price is then set equal to the new-issue price and, based upon the preferred equation, the perfect-market retail coupon rate is computed. Next we estimate equations (for three year segments of the 1971-88 period) explaining conventional commitment mortgage coupon rates in terms of current and lagged values of this perfect-market coupon rate. Finally, we examine differences between the perfect-market and actual coupon rates and compute the impact of these differences on residential capital accumulation.

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Article provided by Elsevier in its journal Regional Science and Urban Economics.

Volume (Year): 19 (1989)
Issue (Month): 2 (May)
Pages: 189-210

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Handle: RePEc:eee:regeco:v:19:y:1989:i:2:p:189-210
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