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

Patric H. Hendershott, Robert Van Order

NBER Working Paper No. 2847 (Also Reprint No. r1334)
Issued in December 1989
NBER Program(s):   ME

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.

(289 K)

(178 K)

Published: Regional Science and Urban Economics, Vol. 19, pp. 189-210, (1989).

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