Premium
The Demand and Supply of Mortgage Funds and Mortgage Loan Terms
Author(s) -
Zumpano Leonard V.,
Rudolph Patricia M.,
Cheng David C.
Publication year - 1986
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.00371
Subject(s) - mortgage loan , economics , loan , econometrics , maturity (psychological) , mortgage underwriting , shared appreciation mortgage , supply and demand , cost of funds index , loan to value ratio , mortgage insurance , monetary economics , actuarial science , microeconomics , macroeconomics , casualty insurance , insurance policy , psychology , developmental psychology
The supply of and demand for residential mortgages has been the subject of much discussion in the literature. Many of these studies have used single equation, partial adjustment models with the price specified as the contract rate. In this study, two of the assumptions that underlie these previous studies are tested empirically. First, the proper specification of the price of mortgage funds is tested by using both the contract rate alone and all of the terms of the mortgage as the price. Second, the speed of adjustment in the mortgage market is examined by estimating the model in both the instantaneous adjustment and partial adjustment forms. Both of these tests are carried out using a simultaneous equation rather than a single equation model. The empirical results indicate that the contract rate along with the loan initiation fees, the loan‐to‐value ratio and the maturity is the better specification of price and that the partial adjustment model performs better than the instantaneous model in the mortgage market.