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A Reconsideration of the Jumbo/Non-jumbo Mortgage Rate Differential

  • McKenzie, Joseph A
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    Consistent with a series of recent papers, the interest-rate differential between mortgages eligible for purchase based on loan size by Fannie Mae and Freddie Mac and larger loans is estimated to be 22 basis points over the 1986-2000 period. This differential averaged 19 basis points for the 1996-2000 period. Other significant effects include: loans slightly above the conforming loan limit and originated late in a calendar year often have a lower rate that nearly fully anticipates their likely characterization as a non-jumbo loan after the conforming loan limit is indexed effective each January; loan-to-value ratios affect jumbo loan rates much more than they affect non-jumbo loan rates; loans located in non-metropolitan areas have a 3 basis point differential versus loans in metropolitan areas that is surprisingly small given the likely higher cost to service non-metropolitan loans and the higher degree of uncertainty about non-metropolitan collateral values; and estimated regional mortgage rate differentials have narrowed through time. Copyright 2002 by Kluwer Academic Publishers

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    Article provided by Springer in its journal Journal of Real Estate Finance & Economics.

    Volume (Year): 25 (2002)
    Issue (Month): 2-3 (Sept.-Dec.)
    Pages: 197-213

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    Handle: RePEc:kap:jrefec:v:25:y:2002:i:2-3:p:197-213
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