Structural change in the mortgage market and the propensity to refinance

Paul Bennett, Richard Peach () and Stavros Peristiani ()

No 9736, Research Paper from Federal Reserve Bank of New York

Abstract: We hypothesize that the intrinsic benefit required to trigger a refinancing has become smaller, due to a combination of technological, regulatory, and structural changes that have made mortgage origination more competitive and more efficient. To test this hypothesis, we estimate an empirical hazard model of loan survival for two subperiods, using a database that allows us to carefully control for homeowners' credit ratings, equity, loan size, and measurable transaction costs. Our findings strongly confirm that credit ratings and home equity have significant effects on refinancing probability. In addition, we provide evidence that homeowners postpone refinancing in the face of increased interest rate volatility, consistent with option value theory. Finally, our results clearly support the hypothesis that structural change in the mortgage market has increased homeowners' propensity to refinance.

Keywords: Mortgages (search for similar items in EconPapers)
Date: 1997
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Structural Change in the Mortgage Market and the Propensity to Refinance (2001)
Working Paper: Structural change in the mortgage market and the propensity to refinance (1998)
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