The Demand and Supply of Mortgage Funds and Mortgage Loan Terms |
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| Authors: | Leonard V Zumpano Patricia M Rudolph David C Cheng |
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| Institution: | College of Commerce and Business, The University of Alabama, University, Alabama 35486.;Department of Economics, Finance and Legal Studies, The University of Alabama. |
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| Abstract: | 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. |
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