NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Benjamin J. Keys

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Working Papers

October 2014Mortgage Rates, Household Balance Sheets, and the Real Economy
with Tomasz Piskorski, Amit Seru, Vincent Yao: w20561
This paper investigates the impact of lower mortgage rates on household balance sheets and other economic outcomes during the housing crisis. We use proprietary loan-level panel data matched to consumer credit records using borrowers' Social Security numbers, which allows for accurate measurement of the effects. Our main focus is on borrowers with agency loans, which constitute the vast majority of U.S. mortgage borrowers. Relying on variation in the timing of resets of adjustable rate mortgages, we find that a sizable decline in mortgage payments ($150 per month on average) induces a significant drop in mortgage defaults, an increase in new financing of durable consumption (auto purchases) of more than 10% in relative terms, and an overall improvement in household credit standing. New fin...
August 2014Failure to Refinance
with Devin G. Pope, Jaren C. Pope: w20401
Households that fail to refinance their mortgage when interest rates decline can lose out on substantial savings. Based on a large random sample of outstanding U.S. mortgages in December of 2010, we estimate that approximately 20% of households for whom refinancing would be optimal and who appeared unconstrained to do so, had not taken advantage of the lower rates. We estimate the present-discounted cost to the median household who fails to refinance to be approximately $11,500, making this a particularly large consumer financial mistake. To shed light on possible mechanisms and corroborate our main findings, we also provide results from a mail campaign targeted at a sample of homeowners that could benefit from refinancing.

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