Economics, Econometrics and Finance
4 years ago

House prices significantly impact mortgage valuation, changing investment landscape.

SSRN Electronic Journal
An Empirical Test of a Two-Factor Mortgage Valuation Model: How Much Do House Prices Matter?
Chris Downing, Richard Stanton, Nancy Wallace

Paper Summary

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The article tests a model for valuing mortgage-backed securities by looking at how house prices affect mortgage prepayment and default. The researchers found that house prices have a significant impact on the results, with MBS prices showing spreads of 5 to 25 basis points. This suggests that changes in house prices can affect the value of mortgage-backed securities.