How Does the Federal Reserve's Large‐Scale Asset Purchases (LSAPs) Influence Mortgage‐Backed Securities (MBS) Yields and U.S. Mortgage Rates?

Hancock, Diana; Passmore, Wayne

doi:10.1111/1540-6229.12109

Cited by 32 publications

(16 citation statements)

References 43 publications

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“…Without the official version of QE announcement events timeline published by the Fed, we identify the events from previous literature. There is a consensus among previous researchers (Gagnon et al, 2011;Woodford, 2012;Hancock and Passmore, 2015;Glick and Leduc, 2015;Hattori et al, 2016;Altavilla and Giannone, 2017) that there were a total of 13 QE announcements during QE1 and QE2. We include all 13 events during QE1 and QE2 in this paper.…”

Section: Qe Announcement Dates For Event Studymentioning

confidence: 99%

The Effects of Quantitative Easing Announcements on the Mortgage Market: An Event Study Approach

Wang¹

2018

Preprint

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This paper uses event study analysis to estimate the impact of the Fed’s Quantitative Easing (QE) announcements on the mortgage market during zero lower bound period. A total of 35 QE announcements are identified and their effects are evaluated. The best-fitting IGARCH model with skewed t distribution is used to measure the QE announcement effects on daily changes of the 30-year mortgage rate, the 30-year Treasury rate and the spread between them. Announcements suggesting the start of a new round of QE reduced the mortgage rate tremendously, while the effects of further news diminished. Announcements of an increase in mortgage-backed security purchases decreased the mortgage rate more than the Treasury rate and reduced the credit risk of holding mortgage securities over Treasury securities. The long run effects of QE announcements on the mortgage rate were less than short run effects but persistent. We also find that the previous literature overestimate QE effects on interest rates in general.

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Section: Qe Announcement Dates For Event Studymentioning

confidence: 99%

The Effects of Quantitative Easing Announcements on the Mortgage Market: An Event Study Approach

Wang¹

2018

Preprint

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“…If a contract allows refinancing, we calculate a path of fixed-rate mortgage rates. In the spirit of Hancock and Passmore (2015), we model fixed-rate mortgage rates with an error correction model. The error correction model insures that both the spread between fixed-rate mortgage rates and COFI as well as the spread between fixed-rate mortgage rates and Treasury yields stay within the historical range.…”

Section: Simulation Of Fixed-cofi Mortgage Performancementioning

confidence: 99%

Improving the 30-Year Fixed-Rate Mortgage

Passmore

Hafften

2017

FEDS

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The 30-year fixed-rate fully amortizing mortgage (or "traditional fixed-rate mortgage") was a substantial innovation when first developed during the Great Depression. However, it has three major flaws. First, because homeowner equity accumulates slowly during the first decade, homeowners are essentially renting their homes from lenders. With so little equity accumulation, many lenders require large down payments. Second, in each monthly mortgage payment, homeowners substantially compensate capital markets investors for the ability to prepay. The homeowner might have better uses for this money. Third, refinancing mortgages is often very costly.We propose a new fixed-rate mortgage, called the Fixed-Payment-COFI mortgage (or "Fixed-COFI mortgage"), that resolves these three flaws. This mortgage has fixed monthly payments equal to payments for traditional fixed-rate mortgages and no down payment. Also, unlike traditional fixed-rate mortgages, Fixed-COFI mortgages do not bundle mortgage financing with compensation paid to capital markets investors for bearing prepayment risks; instead, this money is directed toward purchasing the home.The Fixed-COFI mortgage exploits the often-present prepayment-risk wedge between the fixed-rate mortgage rate and the estimated cost of funds index (COFI) mortgage rate. Committing to a savings program based on the difference between fixed-rate mortgage payments and payments based on COFI plus a margin, the homeowner uses this wedge to accumulate home equity quickly. In addition, the Fixed-COFI mortgage is a highly profitable asset for many mortgage lenders.Fixed-COFI mortgages may help some renters gain access to homeownership. These renters may be, for example, paying rents as high as comparable mortgage payments in high-cost metropolitan areas but do not have enough savings for a down payment. The Fixed-COFI mortgage may help such renters, among others, purchase homes.JEL CODES: G01, G21, G28

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“…Hancock and Passmore () analyze the effect of the Federal Reserve's QE on Agency MBS yields and mortgage rates…”

Section: Government Responses To the Housing Crisismentioning

confidence: 99%

“…Finally, QE3 involved further purchases of Treasury bonds and Agency MBS during the second half of 2012. Hancock and Passmore (2015) analyze the effect of the Federal Reserve's QE on Agency MBS yields and mortgage rates. 3 Using weekly data from 2002:Q3 through 2013:Q2, the authors first study par current-coupon MBS yields.…”

Section: Maintaining Credit Availabilitymentioning

confidence: 99%

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Introduction to Special Issue: Government Involvement in Residential Mortgage Markets

Frame

2015

Real Estate Economics

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The Federal Reserve Bank of Atlanta's Center for Real Estate Analytics and the University of North Carolina at Charlotte's Center for Real Estate jointly sponsored a research conference held in Charlotte on December 5–6, 2013. The conference theme was “Government Involvement in Residential Mortgage Markets” and included papers and discussions from an array of economists employed in academia, government, think tanks and the private sector. This special issue of Real Estate Economics is composed of seven of the ten papers presented at the conference. The research is concentrated on the recent U.S. housing boom and bust, with a particular focus on the role of government policy.

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How Does the Federal Reserve's Large‐Scale Asset Purchases (LSAPs) Influence Mortgage‐Backed Securities (MBS) Yields and U.S. Mortgage Rates?

Cited by 32 publications

References 43 publications

The Effects of Quantitative Easing Announcements on the Mortgage Market: An Event Study Approach

The Effects of Quantitative Easing Announcements on the Mortgage Market: An Event Study Approach

Improving the 30-Year Fixed-Rate Mortgage

Introduction to Special Issue: Government Involvement in Residential Mortgage Markets

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