James Vanderhoff

Adjustable and Fixed Rate Mortgage Termination, Option Values and Local Market Conditions: An Empirical Analysis

This paper analyzes the probabilities of prepayment or default for Fixed Rate Mortgages (FRMs) and Adjustable Rate Mortgages (ARMs). Using data from the period 1985-1992, the analysis indicates that the likelihood of prepayment of thirty year FRMs was determined primarily by house price appreciation and personal income growth and the likelihood of prepayment of fifteen year FRMs was determined primarily by interest rate changes. ARMs were prepaid less frequently than FRMs, were less likely to be prepaid when interest rates declined and defaulted more often than FRMs. The analysis provides evidence that ARM holders are less mobile than FRM holders. Copyright American Real Estate and Urban Economics Association.

Alternative Mortgage Instruments, Qualification Constraints and the Demand for Housing: An Empirical Analysis

Government-guaranteed mortgage loans (GFRMs) and adjustable-rate mortgages (ARMs) were introduced to make payment to income (PTI) and loan-to-value (LTV) qualification conventions less restrictive. This paper analyzes the effect of GFRMs and ARMs on the demand for housing. Using a large national data set for the 1988 to 1989 period, we employ a two-stage procedure to estimate housing demand. In the first stage, a multinomial logit model estimates the probability of choosing an FRM, ARM or GFRM. Predicted values from the logit are used to construct user costs and estimate housing demand. Using the model estimates, we simulate demand under four different mortgage availability regimes: FRM, FRM and GFRM, FRM and ARM and all three. These simulations indicate that GFRMs, by relaxing LTV constraints, increase housing demand by approximately 6.2% relative to the FRM regime; the addition of ARMs, by relaxing both PTI and LTV constraints, raises demand by an additional 6%, for a total of 12.2% with inclusion of all alternatives. Copyright American Real Estate and Urban Economics Association.

The Probability of Fixed and Adjustable Rate Mortgage Termination

This article analyzes mortgage terminations using a national individual loan data set for the 1986–1992 period. The standard option-choice-theoretic framework is supplemented with variables to proxy for non-option-related termination determinants. Separate multinominal logit models are estimated for three mortgage types: 30-year FRMs, 15-year FRMs, and 30-year ARMs. The results indicate substantial differences in the response of the mortgage types to variables included in the model. FRM15 prepayments are the most responsive to prepayment option values; FRM30 prepayments are less responsive to option values and are dirven by local area housing market and economic conditions; ARM prepayment rates are higher but defeult rates are lower relative to the FRMs. A noteworthy finding is that teaser discounts reduce the likelihood of ARM defaults.

Race of the Homeowner and Appreciation of Single-family Homes in the United States

In this article we use data from the annual housing surveys to compare the real appreciation of black- and white-owned single-family homes in the U.S. in the 1974 to 1983 period. The empirical results show that single-family home appreciation depends primarily on income and population growth in the local real estate market and that race of the homeowner is not important to the appreciation process.

Inflation and stock returns: An industry analysis

Abstract Four hypotheses about the negative relationship between inflation and stock returns are analyzed with real returns in seven industries from 1968:4 to 1982:1. The tax and risk hypotheses predict that inflation effects will differ among firms. The alternative-asset and spurious-correlation hypotheses predict uniform inflation effects. The results support the spurious-correlation hypothesis; the negative inflation effect is insignificant in six of eight regressions when expected real income is added to regressions of real returns on expected inflation. The negative inflation effect is significantly related to depreciation expense in two industries, as predicted by the tax hypothesis.

Two-earner households and housing demand: The effect of the wife's occupational choice

This article analyzes the impact of the occupational choice of married women in two-earner households on the level of housing expenditures. In recent years married women have chosen professional and managerial occupations with increasing frequency. Because entry and exit from such occupations is costly, households will tend to view the incremental income as permanent. To analyze the housing market impact of this trend, a housing expenditure function is estimated using a national data set for the 1979 to 1987 period. The results indicate that households in which the wife is employed in a professional or managerial occupation spend considerably more on housing for given levels of current income. Furthermore, the effect is most pronounced among move-up homebuyers. To the extent that recent trends in female occupational choice continue, the impact on the housing market may be substantial.

Adjustable Rate Mortgages and Housing Demand: The Impact of Initial Rate Discounts

This article investigates the impact of ARM initial rate (teaser) discounts on mortgage choice and housing demand. Because discounted ARM loans may reduce expected user costs, theoretical models predict a positive impact on housing expenditures. To test the hypothesis, a simultaneous model of housing expenditures conditioned upon mortgage instrument choice is estimated using a national sample of transactions for the 1986 to 1988 period. The results indicate that overall housing demand would have been reduced by approximately 13 percent during the period in the absence of ARM loans.

The closing rate on residential mortgage commitments: An econometric analysis

Mortgage lenders routinely guarantee rates and points for periods of 60 days or more and hedge the inherent interest rate risk by selling the proportion of mortgages expected to close in forward markets. This article presents a model of the decision to close on the mortgage and demonstrates that the estimates of the model increase the precision of closing rate forecasts. The analysis indicates that changes in mortgage rates are important determinants of the closing rate for fixed-rate mortgages (FRM) and adjustable-rate mortgages (ARM). Other important factors include whether the mortgage is for a new purchase, for owner occupancy, and for a single-family house, and what the overall level of mortgage rates and the loan-to-value ratio are and whether the rate guarantee was granted at the application date or later.

WHY DO CHARTER SCHOOLS FAIL? - AN ANALYSIS OF CHARTER SCHOOL SURVIVAL IN NEW JERSEY

The reasons for charter school failure may determine if charter school competition improves public education. We estimate survival regressions to assess the effects of various factors on the probability of school failure. We find that students’ test scores are the most important determinant of survival: a one standard deviation increase reduces the probability of failure by at least 72%. Higher expenditures on facilities and a longer waitlist result in smaller but significant reductions in the probability of failure. Factors like administrative and class room expenditures, total enrollment, and student demographics do not have significant effects on school survival.

Support for rational expectations models with U.S. data

Abstract This paper compares simplified versions of three macroeconomic models: the Income-Expenditure model, the St. Louis model, and the Rational Expectations model. Nominal income and inflation rate reduced form equations that nest all three theories are fitted to U.S. quarterly data for period 1951: 4 to 1980: 2. Tests of exclusion restrictions indicate that: (1) Potential output affects the inflation rate but not nominal income. (2) non-stationary parameters characterize the inflation equation but not the nominal income equation, (3) Money affects the inflation rate quicker during periods characterized by volatile money growth rates and by low values of Lucas π parameter. These findings suggest that the Rational Expectations model best describes the data.