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Integration of Mortgage and Capital Markets and the Accumulation of Residential Capital

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  • Patric H. Hendershott
  • Robert Van Order

Abstract

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.

Suggested Citation

  • Patric H. Hendershott & Robert Van Order, 1989. "Integration of Mortgage and Capital Markets and the Accumulation of Residential Capital," NBER Working Papers 2847, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:2847
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    References listed on IDEAS

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    1. 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.
    2. 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.
    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 637-654, May-June.
    5. Green, Jerry & Shoven, John B, 1986. "The Effects of Interest Rates on Mortgage Prepayments," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(1), pages 41-59, February.
    6. 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.
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    Citations

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    Cited by:

    1. Arturo Estrella, 2002. "Securitization and the efficacy of monetary policy," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 243-255.
    2. Rudolph, Patricia M. & Griffith, John, 1997. "Integration of the Mortgage Market into the National Capital Markets: 1963-1993," Journal of Housing Economics, Elsevier, vol. 6(2), pages 164-183, June.
    3. Frank Gyamfi-Yeboah & Alan Ziobrowski, 2010. "The Integration of Mortgage and Capital Markets in Emerging Economies—Evidence from South Africa," The Journal of Real Estate Finance and Economics, Springer, vol. 41(3), pages 339-353, October.
    4. Matiur Rahman & Muhammad Mustafa & Michael Kurth, 1997. "Integration and causality in US mortgage and T-bond markets," Applied Economics Letters, Taylor & Francis Journals, vol. 4(7), pages 445-447.
    5. Patric H. Hendershott & Herbert M. Kaufman (ary), 1992. "The market for home mortgage credit: recent changes and future prospects," Proceedings, Federal Reserve Bank of St. Louis, pages 99-127.
    6. Ali Darrat & Ross Dickens & Osamah Al-Khazali, 2006. "Interactions between mortgage and other capital markets in the USA: has financial deregulation made a difference?," Applied Financial Economics, Taylor & Francis Journals, vol. 16(4), pages 335-345.
    7. Jonathan McCarthy & Richard Peach, 2002. "Monetary policy transmission to residential investment," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 139-158.
    8. Ambrose, Brent W. & Buttimer, Richard Jr., 2005. "GSE impact on rural mortgage markets," Regional Science and Urban Economics, Elsevier, vol. 35(4), pages 417-443, July.
    9. Patric H. Hendershott, 1994. "Housing Finance in the United States," NBER Chapters,in: Housing Markets in the United States and Japan, pages 65-86 National Bureau of Economic Research, Inc.
    10. J. Sa-Aadu & James Shilling & George Wang, 2000. "A Test of Integration and Cointegration of Commercial Mortgage Rates," Journal of Financial Services Research, Springer;Western Finance Association, vol. 18(1), pages 45-61, October.
    11. Kristopher S. Gerardi & Harvey S. Rosen & Paul S. Willen, 2006. "Do households benefit from financial deregulation and innovation?: the case of the mortgage market," Public Policy Discussion Paper 06-6, Federal Reserve Bank of Boston.
    12. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.

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