Mortgage Rates Forecast

1
Executive Summary
Thisreportforecastsfuture 30 yearfixedconventionalmortgages fromJuly2010 to November2010.
Data are fromBoard of Governorsof the Federal Reserve System.Ifoundthe followingimportant
results.
Forecast
July-2010 4.75
August-2010 4.76
September-2010 4.77
October-2010 4.78
November-2010 4.78
 Forecast mortgagerateis measuredin percentages and is calculated using theregressionmodelreportedin Table 7 andfuture
nominal10 year maturity U.S.Treasurysecurities yieldcalculated fromHolt’s exponential smoothing forecasts baseduponthe
model reportedin Table 12
 Mortgage rates exhibitanegative trend. Mortgage ratesdecrease overtime.
 Mortgage ratesdo not exhibitseasonality.
 Mortgage ratesare pro-cyclical,meaningduringaneconomicrecessionmortgage rates
decreases.
 Nominal 10 yearmaturityU.S. Treasurysecuritiesyieldsare correlatedwithmortgage rates.If
Treasurysecuritiesyieldincreasesbyone percentagepoint,all else constant,mortgage rates
will increase by.78 of a percent.
Variable Definition
This project forecasts the monthly interest rate for 30-year fixed conventional mortgages for
AugustthroughNovemberof 2010. A fixedmortgage is “a mortgage in which the interest rate does not
change during the entire term of the loan.”1
In the case of a 30-year fixed conventional mortgage, the
interest rate is fixed for the entire term of 30 years. This is in contrast to adjustable mortgages where

2
the interestrate can change basedon inflationorothervariables. Anothercomponentof aconventional
mortgage is that it is not “insured or guaranteed by the government.”2
Market Description
The mortgage bankingindustryinitiallyappearscompetitive,withover7,000 companiesearning
about $50 to $75 billion in revenue a year.3
However, the market is an oligopoly with the 50 largest
corporations earning 70% of the revenue. Big players include Wells Fargo, JP Morgan Chase, Citigroup
and Bankof America.4
WellsFargois the United State’s largest mortgage lender, servicing one in every
seven mortgage loans in the U.S. With the acquisition of Wachovia it will have a customer base of 9
million and a portfolio of $1.7 trillion,5
($237.15 billion in new originations alone) leading it to 16% of
the market.6
In the United States, JPMorgan Chase owns the largest hedge fund, with $53.5 billion in
assets.7
In 2007 Bankof Americahad24.5% of the marketshare for top mortgage lends,8
however that
has since decreased since the 2008 financial crisis. The fourth largest mortgage lender in the United
States is Citigroup, with $198 billion of residential loans in 2007,9
however this corporation was hit
especially hard during the financial crisis.
All four of these banks received government bailout money [Troubled Assets Relief Program
(TARP) funds] in response the 2008 financial credit crisis. Wells Fargo, JPMorgan Chase, and Bank of
Americahave since repaidtheirTARPfunds.10,11,12
Citibankstill owes a great portion of their $45 billion
in TARP funds which means 35% of their stocks are owned by the government and consequently they
have been taken off the DOW. 13
Since many customers do not have enough money to buy a house from their own savings they
often borrow from a lender. The lender (a.k.a. mortgage originator) is usually a bank or some other
financial institution. The bank charges an interest rate that is added to a fixed amount of monthly
payments to pay back the loan for the mortgage. The interest rate is the cost of borrowing and acts as

3
revenue tothe bank. The interestrate is based on the customers’ likelihood of paying back the loan on
time. The banks use the interest revenue from the mortgage to finance other loans.
Sometimes the original lender sells loans to a third party causing a secondary market. The
original lenderusuallysells itsloaninpiecesof riskiness. Itbundlespieces of all the loans with a certain
riskintopackages called mortgage-backed-securities then sell the mortgage backed security to a third
party. The thirdparty mightrepackage itwithmore loans and sell the setof loansto yetanotherbank or
financial institution, and so on and so forth. The third party is often either another private bank or
financial institution,orthe Federal NationalMortgage Association(a.k.a. FannieMae).14
Since the lender
who owns the loan changes an independent loan servicer may be involved to directly work with the
borrower in collecting the interest payments.15
Even though the current lender may change, the
amount of the monthly payments paid by the borrower does not change for fixed conventional
mortgages.
Data Summary
Freddie Mac has surveyed about 125 lenders in the United States each week since 1971 in the
PrimaryMortgage Market Surveyto determine the average 30 year contract fixed mortgage rate.16
The
nominal 10 year treasury security yield variable is “adjusted to constant maturities.” 17
All the variable data are organized as a time series. They are all also measured in percentage
points, making them an example of ratio measurement. As one can see in the time series Figure 1,
mortgage rateshave a downward trend, and decrease during times of recessions [2007-2009].18,19
Also
one can see from the monthly averages in Table 2 that the monthly percentage points differ by only
fractionsof a percentage pointshowingthere isnoseasonality.20
Looking at the histogram in Figure 3 ,
giventhe time periodof the data[January 1990 – June 2010], the frequencyof interest rate percentage
pointsisroughly bell-shape,with the most popular interest rate between 6 and 6.5 percentage points.
Figure 4 shows that nominal 10 year U.S Treasury securities yield also has downward trend and

4
decreases during recessions [2007-2009].21,22
From the monthly averages in Table 4 one can see there
does not appear to be monthly seasonality.23
Figure 6 is a bell shaped histogram showing the highest
frequency of U.S. Treasury securities yields in the 4 to 5 percentage points range.
As seenin the Table 6: Descriptive Statistics,fromthe given time period, the average mortgage
interest rate has been 5.85 percent. The highest value of 6.76 percentage points occurred in July 2006,
while the lowestvalue of 4.74 percentage points occurredrecentlyinJune 2010. Giventhe range of 4.74
to 6.76 percent, 5.9 percentage points is the median. The nominal 10 year treasury yield averages at
3.44 percentage points.Highof 5.11 percentage points inMay of 2006, low of 2.42 percentage points in
December of 2008, leading to a median of 4.15 percentage points.
Methodology
To forecast future 30 year maturity fixed mortgage rates we estimate a regression with
mortgage rates[mort] as the dependentvariable and nominal 10year maturity U.S. Treasury stock yield
[N10T] as the independent variable.
This is the regression function used:
Mortt= β0 + β1N10Tt + εt
Since 10 year U.S. Treasury securities are used to set long term mortgage rates, we expect the
coefficient for the nominal 10yr maturity Treasury securities yield to be positive.24,25
Figure 7 shows a
scatter graph displayingthe relationshipbetween mortgage rates and treasury yields using the sample
data.
Estimation Results
Table 7 summarizesthe results of the regression.26
With a one month lag,27
all else constant, a
Wald test indicates there is no trend in the data.28
Treasury yield [N10T] is statistically significant and
has a positive coefficientof .78. Thismeansas nominal 10 yearmaturityU.S. Treasuryyield increases by
one percentage point,[all else constant] 30year fixed conventional mortgage rates will increase by .78

5
of a percentage point.29
The adjustedrsquare is.99, meaningthisregressionmodel accounts for 99% of
variability in mortgage rates. For the time period of January 1990 to June 2010 this model has an
average error of about .07 percentage points or about 1%.30
The Forecast
Table 11 (below) isthe forecastedmortgage ratesforJuly2010 throughNovember2010
measuredinpercentage points:
Table 11: Mortgage Rate Forecasts
Forecast
July-2010 4.75
August-2010 4.76
September-2010 4.77
October-2010 4.78
November-2010 4.78
 Forecast mortgage rateis measuredin percentagepoints andis calculated using theregression model reported in Table7 and future
nominal10 year maturity U.S.Treasurysecurities yieldtaken from Holt’s exponential smoothing forecasts based uponthemodel
reportedin Table 12.
To developthisforecastIusedthe regressionmodel inTable 7usingreal data andexploitedthe
patternsto determineaforecastforfuture mortgage rates[July2010 toNovember2010]. Figure 10
(below) showsactual versus forecastmortgage rates.Actual mortgage rates stopinJune 2010 while
forecastvaluesgoto November2010.

6
Figure 10: Mortgage Rates: Actual and Forecast Values
(January 1990 – November2010)
 Actual MortgageRates is based upon data taken fromtheBoardofGovernors ofthe FederalReserveSystem. “CONTRACTRATEON
30-YEAR, FIXED-RATECONVENTIONAL HOMEMORTGAGECOMMITMENTS”H.15 SelectedInterest Rates for Jul19,2010. ONLINE. 19
July 2010. Available:
http://www.federalreserve.gov/datadownload/Download.aspx?rel=H15&series=74bef9826667028ac81f5468a626ef0e&filetype=spr
eadsheetml&label=include&layout=series [19July 2010].
 Forecast mortgagerateis calculated using theregression model reported in Table 7. Actual Treasury securities yield for January
1990 through June2010is basedupondata taken from Board ofGovernors oftheFederal Reserve System. “Market yield onU.S.
Treasury securities at10-year constantmaturity, quotedon investmentbasis” H.15Selected Interest Rates for Jul 19, 2010.ONLINE.
19 July 2010.Available:
eadsheetml&label=include&layout=series [19July 2010]. Treasury securities yield for July 2010 through November 2010basedupon
Holt’s exponential smoothing forecastin Table 12.
As one can see,mortgage ratesare expectedtoincrease slightly,comparingJune’sactual mortgage rate
of 4.74 percentage pointstoNovember’sforecastof 4.78 percentage points. I recommend encouraging
customers to buy their new home now before the cost of borrowing to finance their new home
increases.
0
2
4
6
8
10
12
1990-01
1991-01
1992-01
1993-01
1994-01
1995-01
1996-01
1997-01
1998-01
1999-01
2000-01
2001-01
2002-01
2003-01
2004-01
2005-01
2006-01
2007-01
2008-01
2009-01
2010-01
Percentagepoints
Month
Actual
Forecast

7
Appendix
Figure 1: 30-year FixedMortgage Rates
(January 1990– June 2010)
Board of Governors oftheFederal Reserve System.“CONTRACTRATEON 30-YEAR, FIXED-RATECONVENTIONAL HOMEMORTGAGE
COMMITMENTS”H.15 SelectedInterest Rates for Jul19,2010.ONLINE. 19July 2010.Available:
http://www.federalreserve.gov/datadownload/Download.aspx?rel=H15&series=74bef9826667028ac81f5468a626ef0e&filetype=spreadsheetm
l&label=include&layout=series [19 July 2010].
0
2
4
6
8
10
12
Percentagepoints
Month

8
Figure 2: 30-year FixedMortgage Rates

9
Table 2: Monthly Mean of30-year FixedMortgage Rates
Month Percentage points
January 7.08
February 7.07
March 7.13
April 7.20
May 7.22
June 7.20
July 7.30
August 7.26
September 7.14
October 7.12
November 7.11
December 7.01

10
Table 3: WelchTest for Monthly Seasonalityof30-year FixedMortgage Rates

11
Figure 3: Frequencyof30-year FixedMortgage Rates inVarious Percentage PointsRanges
(January 1990 – June 2010)
0
5
10
15
20
25
30
35
40
0.25
0.75
1.25
1.75
2.25
2.75
3.25
3.75
4.25
4.75
5.25
5.75
6.25
6.75
7.25
7.75
8.25
8.75
9.25
9.75
10.25
10.75
11.25
11.75
Frequency
Percentage points

12
Figure 4: Nominal 10 year Treasury SecurityYields
Board of Governors oftheFederal Reserve System.“Market yield onU.S. Treasury securities at 10-year constantmaturity, quoted on
investment basis”H.15 Selected Interest Rates for Jul 19,2010. ONLINE. 19 July 2010. Available:
0
1
2
3
4
5
6
7
8
9
10
Percentagepoints
Month

13
Figure 5: Nominal 10 year Treasury SecurityYields

14
Table 4: Monthly Mean of10 year maturity U.S. Treasury SecuritiesYield
Month Percentage points
January 5.45
February 5.45
March 5.51
April 5.60
May 5.65
June 5.61
July 5.56
August 5.48
September 5.33
October 5.33
November 5.31
December 5.33
investment basis”H.15 Selected InterestRates for Jul 19,2010. ONLINE. 19July 2010. Available:

15
Table 5: WelchTest for Monthly Seasonalityof10 year maturity U.S. Treasury Yied
investment basis”H.15 Selected InterestRates for Jul 19,2010. ONLINE. 19July 2010. Available:

16
Figure 6: FrequencyofNominal 10 year Treasury Security YieldsinVarious Percentage PointsRanges
0
10
20
30
40
50
60
70
80
0.5 1.5 2.5 3.5 4.5 5.5 6.5 7.5 8.5 9.5
Frequency
Percentage Points

17
Table 6: Descriptive Statistics
January 1990 – June 2010
M N10T
Mean 5.85 4.10
Standard Error 0.06 0.06
Median 5.92 4.15
Mode 5.92 4.72
Standard Deviation 0.52 0.58
Sample Variance 0.27 0.34
Kurtosis -0.70 0.24
Skewness -0.46 -0.54
Range 2.02 2.69
Minimum 4.74 2.42
Maximum 6.76 5.11
Sum 526.09 368.70
Count 90.00 90.00
 M [30-year fixed mortgagerates]is measuredin percentagepoints andis takenfrom the Board ofGovernors oftheFederalReserve
System. “CONTRACTRATEON 30-YEAR, FIXED-RATECONVENTIONAL HOMEMORTGAGECOMMITMENTS”H.15 Selected Interest
Rates for Jul 19,2010. ONLINE. 19July 2010. Available:
 N10T[Nominal10year Treasury Security Yields]is measured inpercentage points andis taken from theBoard ofGovernors ofthe
FederalReserveSystem. “Marketyieldon U.S. Treasury securities at10-year constant maturity,quoted on investmentbasis”H.15
Selected InterestRates for Jul 19,2010. ONLINE. 19July 2010. Available:

18
Figure 7: Mortgage Rates & Treasury SecuritiesYield
 30 yr Fixed MortgageRates is based upon data takenfrom Board ofGovernors oftheFederalReserveSystem.“CONTRACTRATEON
 Nominal 10 yr Treasury Securities Yield is based upon data taken fromBoardofGovernors ofthe FederalReserveSystem. “Market
yield on U.S. Treasury securities at 10-year constantmaturity, quoted oninvestment basis” H.15 Selected Interest Rates for Jul 19,
2010. ONLINE. 19 July 2010.Available:
0
1
2
3
4
5
6
7
8
9
10
0 2 4 6 8 10 12
Nominal10yrU.S.TreasurySecuritiesYield
30 yr Fixed Mortgage Rates

19
Table 7: 30 year FixedMortgage Rates
 30 yr Fixed MortgageRates is measuredin percentagepoints andis based upondata takenfrom Board ofGovernors oftheFederal
ReserveSystem. “CONTRACTRATEON 30-YEAR, FIXED-RATECONVENTIONAL HOMEMORTGAGECOMMITMENTS”H.15 Selected
Interest Rates for Jul19,2010. ONLINE. 19 July 2010. Available:
 Nominal 10 yr Treasury Securities Yield is measured in percentage points and based upon data taken fromBoardofGovernors ofthe
FederalReserveSystem. “Marketyieldon U.S. Treasury securities at10-year constant maturity, quotedon investmentbasis” H.15
Selected Interest Rates for Jul 19, 2010. ONLINE. 19July 2010. Available:
 Estimates correctedfor serially-correlated error terms using NLS as describedby Ray C. Fair,Specification,Estimation, andAnalysis
of Macroeconomic Models, Cambridge, MA; HarvardUniversity Press, 1984;pp 210-214.
 Estimates are corrected for heteroskedasticity using theprocedure describedin H. White,“AHeteroskedasticity-consistent
CovarianceMatrix Estimatorand a DirectTest for Heteroskedasticity,” Econometrica, 48 (4), 1980,pp. 817-838.
Table 8: 30 year FixedMortgage Rates: White Testfor Heteroskedasticity
 Test for heteroskedasticity, as described byH. Whitein“AHeteroskedasticity-consistent CovarianceMatrix Estimatoranda Direct
Test for Heteroskedasticity,” Econometrica, 48(4), 1980, pp. 817-838.

20
Figure 8: Correlogram for Residuals
 Residuals arefrom the regressionMortt=β 0 +β1N10Tt +εt used to test for autocorrelation.

21
Table 9: 30-year FixedMortgage Rates: WaldTest
 Hypothesis test ofH0: 2=3=0, versus HA: at least one ofthesebetas  0. Basedupon regression model reportedin Table10
Figure 9: Correlogram for Residuals
 Residuals arefrom the regressionsummarized inTable7.

22
Table 10: 30 year FixedMortgage Rates
 30 yr Fixed MortgageRates is measuredin percentagepoints andis based upondata takenfrom Board ofGovernors oftheFederal
ReserveSystem. “CONTRACTRATEON 30-YEAR, FIXED-RATECONVENTIONAL HOMEMORTGAGECOMMITMENTS”H.15 Selected
Interest Rates for Jul19,2010. ONLINE. 19 July 2010. Available:
 Nominal 10 yr Treasury Securities Yield is measured in percentage points and based upon data taken fromBoardofGovernors of the
FederalReserveSystem. “Marketyieldon U.S. Treasury securities at10-year constant maturity, quotedon investmentbasis” H.15
Selected Interest Rates for Jul 19, 2010. ONLINE. 19July 2010. Available:
 @TREND is a linear trend variable.
 @TREND^2 is a quadratictrendvariable.
 Estimates correctedfor serially-correlated error terms using NLS as describedby Ray C. Fair, Specification,Estimation, andAnalysis
of Macroeconomic Models, Cambridge, MA; HarvardUniversity Press, 1984;pp 210-214.
 Estimates are corrected for heteroskedasticity using theprocedure describedin H. White,“AHeteroskedasticity-consistent
CovarianceMatrix Estimatorand a DirectTest for Heteroskedasticity,”Econometrica, 48 (4), 1980,pp. 817-838.
Table 11: Mortgage Rate Forecasts
Forecast
July-2010 4.75
August-2010 4.76
September-2010 4.77
October-2010 4.78
November-2010 4.78

23
 Forecast mortgage rateis measuredin percentagepoints andis calculated using theregression model reported in Table 7 and future
nominal10 year maturity U.S.Treasurysecurities yield calculated fromHolt’s exponential smoothing forecasts baseduponthe
model reportedin Table 12.
Table 12: Holt’s Smoothingof Treasury Yields
(January 1990 –November2010)
 Nominal 10 yearmaturities U.S. Treasury securities yield is based upon data takenfrom BoardofGovernors oftheFederalReserve
System. “Market yield onU.S. Treasury securities at 10-year constantmaturity, quotedon investmentbasis”H.15SelectedInterest
Rates for Jul 19,2010. ONLINE.19 July2010. Available:

24
Figure 10: Mortgage Rates: Actual and Forecast Values
(January 1990 – November2010)
 Actual MortgageRates is based upon data taken fromtheBoardofGovernors ofthe FederalReserveSystem. “CONTRACTRATEON
 Forecast mortgagerateis calculated using theregression model reported in Table7. Actual Treasury securities yield for January
1990 through June2010is basedupondata taken from Board ofGovernors oftheFederal Reserve System. “Market yield onU.S.
Treasury securities at10-year constantmaturity, quotedon investmentbasis” H.15Selected Interest Rates for Jul 19, 2010.ONLINE.
19 July 2010.Available:
eadsheetml&label=include&layout=series [19July 2010]. Treasury securities yield for July 1990 through November 2010basedupon
Holt’s exponential smoothing forecastin Table 12.
0
2
4
6
8
10
12
1990-01
1991-01
1992-01
1993-01
1994-01
1995-01
1996-01
1997-01
1998-01
1999-01
2000-01
2001-01
2002-01
2003-01
2004-01
2005-01
2006-01
2007-01
2008-01
2009-01
2010-01
Percentagepoints
Month
Actual
Forecast

25
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"ConventionalMortgage." InvestorWords.com.
http://www.investorwords.com/1097/conventional_mortgage.html/(accessedMay27, 2010).
Fannie Mae."AboutFannie Mae." FannieMae. 2010.
http://www.fanniemae.com/kb/index?page=home&c=aboutus(accessedJune21,2010).
Federal Trade Commission:Bureauof ConsumerProtection:Divisionof ConsumerandBusiness
Education."Factsfor Consumers:Mortgage Servicing:MakingSure YourPaymentsCount."
Federal TradeCommission:Protecting America'sConsumers. June7,2010.
http://www.ftc.gov/bcp/edu/pubs/consumer/homes/rea10.shtm(accessedJune 21,2010).
Freddie Mac."Aboutthe PrimaryMortgage Market Survey® (PMMS®):AboutFreddieMac." Freddie
Mac. 2010. http://www.freddiemac.com/pmms/abtpmms.htm(accessedJuly19,2010).
Gross, Daniel."The RecessionIs...Over?" Newsweek. July14,2009.
http://www.newsweek.com/2009/07/13/the-recession-is-over.html(accessedJuly19,2010).
Hoovers."IndustryOverview:Mortgage Banking." Hoovers:a D&B Company. 2010.
http://www.hoovers.com/mortgage-banking/--ID__176--/free-ind-fr-profile-basic.xhtml
(accessedJuly9,2010).
Marchinone,Karen."Bankof AmericaCatapultsto#1 PositioninOnline Mortgage Lendingwiththe
Acquisitionof Countrywide." Compete. 25January,2008.
http://blog.compete.com/2008/01/25/bank-of-america-countrywide-merger-online-mortgage/
Market Folly."World'sLargestHedge Funds." MarketFolly. March 9, 2010.
http://www.marketfolly.com/2010/03/worlds-largest-hedge-funds.html (accessedJuly9,2010).
Mortgage-X."TreasuryMarketand Mortgage Rates."Mortgage-X:MortgageInformation Service. 2010.
http://mortgage-x.com/general/treasury.asp(accessedJuly23,2010).
National League of Cities."National Leagueof Cities:Corporate Partner:WellsFargo." NationalLeague
of Citites.
http://www.nlc.org/inside_nlc/membership/corporate_partners_program/11734.aspx
Nielsen,Barry."HowInterestRatesAffectThe HousingMarket." Investopedia. 2010.
http://www.investopedia.com/articles/pf/07/mortgage_rate.asp(accessedJuly21, 2010).

26
Rueters."CitgrouptoCutMortgage Exposure by$45 Billion." CNBC. March6, 2008.
http://www.cnbc.com/id/23506350/Citigroup_to_Cut_Mortgage_Exposure_by_45_Billion
WellsFargo."Mark C. Oman: ." Wells Fargo. May 2010.
https://www.wellsfargo.com/about/corporate/executive_officers/oman(accessedJuly9,2010).
Wikinvest."Bankof America(BAC)." Wikinvest. 2010.
http://www.wikinvest.com/stock/Bank_of_America_(BAC) (accessedJuly9,2010).
—."Citigroup(C)." Wikinvest. 2010. http://www.wikinvest.com/wiki/CITIBANK(accessedJuly9,2010).
—."J P Morgan Chase (JPM)." Wikinvest. 2010.
http://www.wikinvest.com/stock/J_P_Morgan_Chase_(JPM) (accessedJuly9,2010).
—."WellsFargo(WFC)."Wikinvest. 2010. http://www.wikinvest.com/wiki/Wells_Fargo_(WFC)
1 "Conventional Mortgage." InvestorWords.com.
http://www.investorwords.com/1097/conventional_mortgage.html/ (accessed May 27, 2010).
2 Ibid.
3 Hoovers. "Industry Overview: Mortgage Banking." Hoovers: a D&B Company. 2010.
http://www.hoovers.com/mortgage-banking/--ID__176--/free-ind-fr-profile-basic.xhtml (accessed July 9, 2010).
4 Ibid.
5 Wells Fargo."Mark C. Oman: ." Wells Fargo. May 2010.
https://www.wellsfargo.com/about/corporate/executive_officers/oman (accessed July 9, 2010).
6 National League of Cities."National League of Cities:Corporate Partner: Wells Fargo." National League of Citites.
http://www.nlc.org/inside_nlc/membership/corporate_partners_program/11734.aspx (accessed July 9,2010).
7 Market Folly."World's LargestHedge Funds." Market Folly. March 9, 2010.
http://www.marketfolly.com/2010/03/worlds-largest-hedge-funds.html (accessed July 9, 2010).
8 Marchinone,Karen. "Bank of America Catapults to #1 Position in OnlineMortgage Lending with the Acquisition of
Countrywide." Compete. 25 January,2008.http://blog.compete.com/2008/01/25/bank-of-america-countrywide-
merger-online-mortgage/ (accessed July 9, 2010).
9 Rueters. "Citgroup to Cut Mortgage Exposureby $45 Billion." CNBC. March 6, 2008.
http://www.cnbc.com/id/23506350/Citigroup_to_Cut_Mortgage_Exposure_by_45_Billion (accessed July 7, 2010).
10 Wikinvest."Bank of America (BAC)." Wikinvest. 2010.http://www.wikinvest.com/stock/Bank_of_America_(BAC)
(accessed July 9, 2010).
11 —. "J P Morgan Chase(JPM)." Wikinvest. 2010.http://www.wikinvest.com/stock/J_P_Morgan_Chase_(JPM)
(accessed July 9, 2010).
12 —. "Wells Fargo (WFC)." Wikinvest. 2010. http://www.wikinvest.com/wiki/Wells_Fargo_(WFC) (accessed July 9,
2010).
13 —. "Citigroup (C)." Wikinvest. 2010.http://www.wikinvest.com/wiki/CITIBANK (accessed July 9, 2010).

27
14 FannieMae. "About FannieMae." FannieMae. 2010.
http://www.fanniemae.com/kb/index?page=home&c=aboutus (accessed June 21,2010).
15Federal Trade Commission:Bureau of Consumer Protection: Division of Consumer and Business Education."Facts
for Consumers: Mortgage Servicing:MakingSure Your Payments Count." Federal Trade Commission: Protecting
America's Consumers. June 7, 2010.http://www.ftc.gov/bcp/edu/pubs/consumer/homes/rea10.shtm (accessed
June 21, 2010).
16 Freddie Mac. "About the Primary Mortgage Market Survey® (PMMS®): About Freddie Mac." Freddie Mac. 2010.
http://www.freddiemac.com/pmms/abtpmms.htm (accessed July 19, 2010).
17 Ibid.
18 Gross,Daniel."The Recession Is...Over?" Newsweek. July 14, 2009.
http://www.newsweek.com/2009/07/13/the-recession-is-over.html (accessed July 19, 2010).
19 Referring to the correlogramin Figure2 there appears to be trend and 1st order autocorrelation.
20Table 3 shows Welch test output for monthly seasonality with H0:µ1 = µ2 = … µ12. The alternativehypothesis is that
at leastone group’s mean is different. With α= 0.05 I do not reject the null hypothesis.
21 Gross,Daniel."The Recession Is...Over?" Newsweek. July 14, 2009.
http://www.newsweek.com/2009/07/13/the-recession-is-over.html (accessed July 19, 2010).
22 Referring to the correlogramin Figure5 there appears to be trend and 1st order autocorrelation.
23Table 5 shows Welch test output for monthly seasonality with H0:µ1 = µ2 = … µ12. The alternativehypothesis is that
at leastone group’s mean is different. With α= 0.05 I do not reject the null hypothesis.
24 Nielsen, Barry."How Interest Rates Affect The HousingMarket." Investopedia. 2010.
http://www.investopedia.com/articles/pf/07/mortgage_rate.asp (accessed July 21,2010).
25 Mortgage-X. "Treasury Market and Mortgage Rates." Mortgage-X: Mortgage Information Service. 2010.
http://mortgage-x.com/general/treasury.asp (accessed July 23, 2010).
26Table 8 shows White test (as described by H. White in “A Heteroskedasticity-consistentCovarianceMatrix
Estimator and a Direct Test for Heteroskedasticity,” Econometrica, 48 (4), 1980,pp. 817-838) indicates the
presence of heteroskedasticity (p=0.0000).
27 Figure 8 shows the correlogramof residualsfor regression:Mortt= β 0 + β1N10Tt + εt in order to test for 1st order
autocorrelation usingtheQ-statistics.H0:ρ1 =0; HA: ρ1 ≠ 0. With. α = 0.05, I reject the null hypothesis.
28
Table 9 show results of Wald test for trend for regression model reported in Table 10. H0: 2=3=0, versus HA: at
leastone of these betas  0. With α= 0.05, I do not reject the null hypothesis.
29 Usingregression results in Table7, I performed a hypothesis test with H0:1 = 0; HA: 1 > 0 to test if an increase
in nominal 10 year maturity U.S. Treasury stock causes an increasein 30 year fixed mortgage rates. With. α = 0.05,
I reject the null hypothesis.
30 Figure 9 shows correlogramof residuals for regression given in Table 7, showingthe residualsappear to be white
noise(as shown by AC and PAC within the “rejection region bands” and low Q-stats).

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