The Impact of the Agencies on Conventional Fixed-Rate Mortgage Yields

Between the early 1980s and 1986, the share of new conforming (under $153,000 in 1986) conventional fixed-rate mortgages (FRMs) that went into Fannie Mae and Freddie Mac mortgage pools increased from under 5 percent to over 50 percent. The impact of these agencies moving from negligible participants to dominant players in this market is investigated in this study by an analysis of yields on 4,900 loans closed in California during May-June 1978 and 1,800 closed in 'May-June 1986. Our analysis indicates that the loan rate depends on the loan-to-value ratio, the loan size, and, in 1986, whether the loan is far above, just above, or below the conforming loan limit. Rates on loans far above the conforming loan limit exceed those on otherwise comparable loans below the limit by 30 basis points and those on loans destined to exceed the limit within a year by 15 basis points. That is, the expanded agency securitization of conforming FRMs has significantly lowered the rates on both conforming loans and loans somewhat above the conforming limit (27 percent of nonconforming loans in 1986) relative to what they would otherwise have been. The effects of a 30 basis point lower FRM rate are many: households are more likely to choose FRMs than ARMs, to decide to own rather than rent, and to own larger houses. Moreover, traditional mortgage portfolio lenders will have fewer ARMs to purchase and will earn lower returns on FRM investments. A few sample calculations are provided to illustrate the possible magnitudes of these effects

Reforming Conforming Loan Limits: The Impact on Thrift Earnings and Taxpayer Outlays

In recent years, the conforming loan limit hes risen rapidly (62 percent between 1985 and 1989 versus a 10 percent rise in the price of a constant-quality new house) and has assumed significant importance to homebuyers and portfolio lenders. Fannie Mae and Freddie Mac have become the price setters for conforming FRMs, and the yield being set appears to be 30 basis points below what it would otherwise be. The lower yield raises the old issue of overinvestment in housing, but its most important effect is on thrifts who now earn 30 basis points less on FRM investments under the conforming limit end who have difficulty originating ARMs. Moreover, given other thrift problems, taxpayers will apparently end up directly funding the interest income lost owing to low yields on conforming FRMs. In this paper we calculate the impact on thrift interest income of two redefinitions of conforming loans: making all refinancings nonconforming and lowering the loan limit to the loan ceiling for FMA/VA loans (which was, in fact, the conforming limit prior to 1975) . Each of these redefinitions makes sense from a public policy perspective. Thrifts would have earned nearly $700 million more in 1987 had both redefinitions been in place at the start of 1986. This would have amounted to a 23 percent increase in the industry net operating income (income excluding profits of losses from the sale of assets) and a corresponding increase in return to equity. By the early 1990s, the income gain from these changes, had they been put in place in early 1986, would likely be over a billion dollars -- certainly a noticeable saving for taxpayers.

The Impacts on Capital Allocation of Some Aspects of the Economic Recovery Tax Act of 1981

This paper develops and employs a five-asset, four-household and single-business sector simulation model to measure the long-run impacts of the major provisions of the Economic Recovery Tax Act of 1981 on the allocation of a fixed capital stock among owner-occupied housing, rental housing, and nonresidential capital. The specific provisions analyzed are the increases in tax depreciation for nonresidential capital and rental housing and the reduction in the maximum tax rate on unearned income. Our analysis suggests a 6 percent increase in nonresidential capital, an 11 percent decline in owner-occupied housing and little change in rental housing (the increase in the number of renters -- the homeownership rate declines by 1 1/2 percentage points -- offsets a decline in the quantity of rental services demanded per renter). In the absence of an increase in aggregate saving, real pretax interest rates rise by nearly two percentage points. Corporate profit taxes decline by 60 percent, and after-tax earnings rise by 25 percent. As a result of the Act, the net (of depreciation) user costs for the three types of capital will almost be equalized.

A Simulation Analysis of the Relationship between Retail Sales and Shopping Center Rents

This article examines the variation in rents per square foot among regional shopping centers in the United States in response to variation in retail sales per square foot. The analysis breaks new ground by treating base and percentage rents as endogenous functions of retail sales. The analysis further distinguishes between de facto, if not de jure, fixed and percentage leases, and between new versus existing leases. Simulation results suggest that shopping center rents can easily increase in the short-run as retail sales decrease, or they can easily decrease as retail sales increase. In addition, the results suggest that shopping center rents per square foot generally react more aggressively to an increase in retail sales per square foot over time than to a decrease in retail sales per square foot, all else equal

The Effect of Firm Characteristics on the Use of Percentage Retail Leases

Choice of lease payments has been widely studied in the literature. There are three—not necessarily exclusive—explanations that have received attention. The first attributes the choice of fixed versus percentage lease payments to risk-sharing preferences. The second explanation views percentage-of-sales lease agreements as a way discriminating monopolists can appropriate economic rents. The third attributes percentage-of-sales lease agreements to a metering and bonding argument. This paper examines the proposition that the choice of percentage retail leases is driven in part by managements\u27 desire to circumvent the cost of violating debt covenant restrictions. The evidence presented here supports the prediction that retail firms with higher debt–asset ratios are more likely to adopt percentage lease agreements

A Simulation Analysis of the Relationship between Retail Sales and Shopping Center Rents

This article examines the variation in rents per square foot among regional shopping centers in the United States in response to variation in retail sales per square foot. The analysis breaks new ground by treating base and percentage rents as endogenous functions of retail sales. The analysis further distinguishes between de facto, if not de jure, fixed and percentage leases, and between new versus existing leases. Simulation results suggest that shopping center rents can easily increase in the short-run as retail sales decrease, or they can easily decrease as retail sales increase. In addition, the results suggest that shopping center rents per square foot generally react more aggressively to an increase in retail sales per square foot over time than to a decrease in retail sales per square foot, all else equal.

The Continued Interest Rate Vulnerability of Thrifts

The 1980s S&L debacle is generally viewed as the result of: (1) sharply rising interest rates eliminating the net worth of thrifts funding fixed-rate loans with short-term deposits and (2) thrifts responding by taking even greater interest-rate and credit risks. The question investigated in this paper is how vulnerable do thrifts remain to an interest rate experience like that which triggered the 1980s S&L debacle? The short answer is that thrifts are even more vulnerable in 1989 than they were in 1977. The dollar volume of fixed-rate mortgages funded by short-term deposits in 1989, $400 billion, is slightly greater now than it was in 1977, and thrifts have also put over$325 billion of adjustable-rate loans with rate caps on their balance sheets. A sharp rise in interest rates (the one-year Treasury rate rose by 9 percentage points between 1977 and 1981) would cause significant losses on these capped loans, as well as on the fixed-rate loans.

Optical coherence tomography: an assessment of current training across all levels of seniority in 8 ophthalmic units in the united kingdom

BACKGROUND: Optical Coherence Tomography (OCT) is becoming an increasingly integral part of ophthalmological clinical practice. The accurate interpretation of OCT images is important both in terms of diagnosis and in directing subsequent management. The aim of this study was to determine the clinical competence in OCT image interpretation of ophthalmologists in different subspecialties and grades. METHODS: Eight OCT images demonstrating a single macular pathology and two normal scans were selected by case notes review. These ten images were shown to thirty doctors and 10 non-medical staff from eight units. They were asked to identify each lesion, the average thickness of the lesion, and the axis at which the OCT was taken. One point was awarded for each correct answer. RESULTS: The mean scores for the correct qualitative identification of the OCT lesion (with a maximum score of 10) for different grades of doctors and non-medical staff were as follows: medical retinal consultants (MRC), 9 (range, 8–10); vitreoretinal consultants (VRC), 7 (range, 6–9); non-retinal consultants (NRC), 4 (range, 2–6); vitreoretinal fellows (VRF), 4 (range, 3–7); specialist registrars (SpR), 3 (range, 2–5); senior house officers (SHO), 4 (range, 3–6); orthoptists, 1 (range, 0–1); ancillary staff, 2 (range, 0–3). CONCLUSION: A wide range in the ability to accurately interpret OCT images has been demonstrated. All doctors would thereby benefit from further training in the interpretation of OCT scans

Particle mass yield in secondary organic aerosol formed by the dark ozonolysis of α-pinene

The yield of particle mass in secondary organic aerosol (SOA) formed by dark ozonolysis was measured for 0.3–22.8 ppbv of reacted α-pinene. Most experiments were conducted using a continuous-flow chamber, allowing nearly constant SOA concentration and chemical composition for several days. For comparison, some experiments were also conducted in batch mode. Reaction conditions were 25°C, 40% RH, dry (NH<sub>4</sub>)SO<sub>4</sub> seed particles, and excess 1-butanol. The organic particle loading was independently measured by an aerosol mass spectrometer and a scanning mobility particle sizer, and the two measurements agreed well. The observations showed that SOA formation occurred for even the lowest reacted α-pinene concentration of 0.3 ppbv. The particle mass yield was 0.09 at 0.15 μg m<sup>−3</sup>, increasing to 0.27 at 40 μg m<sup>−3</sup>. Compared to some results reported in the literature, the yields were 80 to 100% larger for loadings above 2 μg m<sup>−3</sup>. At lower loadings, the yields had an offset of approximately +0.07 from those reported in the literature. To as low as 0.15 μm<sup>−3</sup>, the yield curve had no inflection point toward null yield, implying the formation of one or several products having vapor pressures below this value. These observations of increased yields, especially for low loadings, are potentially important for accurate prediction by chemical transport models of organic particle concentrations in the ambient atmosphere