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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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File URL: http://www.sciencedirect.com/science/article/pii/0166-0462(89)90003-3
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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
Contact details of provider: Web page: http://www.elsevier.com/locate/regec

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  1. Jerry Green & John B. Shoven, 1983. "The Effects of Interest Rates on Mortgage Prepayments," NBER Working Papers 1246, National Bureau of Economic Research, Inc.
  2. Patric H. Hendershott, 1980. "Real User Costs and the Demand for Single-Family Housing," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 11(2), pages 401-452.
  3. Brennan, Michael J. & Schwartz, Eduardo S., 1977. "Savings bonds, retractable bonds and callable bonds," Journal of Financial Economics, Elsevier, vol. 5(1), pages 67-88, August.
  4. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
  5. David F. Seiders, 1983. "Mortgage Pass-Through Securities: Progress and Prospects," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 11(2), pages 264-287.
  6. Chester Foster & Robert Order, 1985. "FHA Terminations: A Prelude to Rational Mortgage Pricing," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 13(3), pages 273-291.
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