Refinancing Frictions, Mortgage Pricing and Redistribution

David Berger, Konstantin Milbradt, Fabrice Tourre and Joseph Vavra

No 32022, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: There are large cross-sectional differences in how often US borrowers refinance mortgages. In this paper, we develop an equilibrium mortgage pricing model with heterogeneous borrowers and use it to show that equilibrium forces imply important cross-subsidies from borrowers who rarely refinance to those who refinance often. Mortgage reforms can potentially reduce these regressive cross-subsidies, but the equilibrium effects of these reforms can also have important distributional consequences. For example, many policies that lead to more frequent refinancing also increase equilibrium mortgage rates and thus reduce residential mortgage credit access for a large number of borrowers.

JEL-codes: D53 E1 E44 G5 G51 (search for similar items in EconPapers)
Date: 2024-01
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