EconPapers    
Economics at your fingertips  
 

How do mortgage refinances affect debt, default, and spending? Evidence from HARP

Joshua Abel and Andreas Fuster ()
Additional contact information
Joshua Abel: Harvard University

No 841, Staff Reports from Federal Reserve Bank of New York

Abstract: We use quasi-random access to the Home Affordable Refinance Program (HARP) to identify the causal effect of refinancing a mortgage on borrower balance sheet outcomes. We find that on average, refinancing into a lower-rate mortgage reduced borrowers' default rates on mortgages and nonmortgage debts by about 40 percent and 25 percent, respectively. Refinancing also caused borrowers to expand their use of debt instruments, such as auto loans, home equity lines of credit (HELOCs), and other consumer debts that are proxies for spending. All told, refinancing led to a net increase in debt equal to about 20 percent of the savings on mortgage payments. This number combines increases (new debts) of about 60 percent of the mortgage savings and decreases (paydowns) of about 40 percent of those savings. Borrowers with low FICO scores or low levels of unused revolving credit grow their auto and HELOC debt more strongly after a refinance but also reduce their bank card balances by more. Finally, we show that take-up of the refinancing opportunity was strongest among borrowers that were in a relatively better financial position to begin with.

Keywords: mortgages; refinancing; monetary policy transmission; heterogeneity; HARP (search for similar items in EconPapers)
JEL-codes: D14 E21 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc, nep-ban, nep-mac and nep-ure
Date: 2018-02-01
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://www.newyorkfed.org/research/staff_reports/sr841.html Summary (text/html)
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr841.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fednsr:841

Ordering information: This working paper can be ordered from
http://www.ny.frb.org/rmaghome/staff_rp/

Access Statistics for this paper

More papers in Staff Reports from Federal Reserve Bank of New York Contact information at EDIRC.
Bibliographic data for series maintained by Amy Farber ().

 
Page updated 2019-10-16
Handle: RePEc:fip:fednsr:841