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| The Value of Mortgage Assumptions: An
Empirical Test Author: Mark A. Sunderman, Roger E. Cannaday, and Peter F. Colwell Start Page: 247 Abstract: This study provides an
empirical test of the two main techniques for calculating the financing premium for
assumption financed sales, cash equivalence adjustment (CEA) and financed-fee valuation
adjustment (FFVA). The results indicate that both the CEA and FFVA computational
techniques overvalue the premium associated with assumption financing. A variation of the
empirical test is considered that differentiates this study from previous studies. This
variation allows for a test of the hypothesis that the proportion of the financing premium
capitalized into the sales price is a function of the loan-to-price ratio. It is concluded
that this hypothesis cannot be rejected. |
