NBER Working Papers by Benjamin J. Keys

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Working Papers

March 2015Regional Redistribution Through the U.S. Mortgage Market
with Erik Hurst, Amit Seru, Joseph S. Vavra: w21007
An integrated tax and transfer system together with factor mobility can help mitigate local shocks within monetary and fiscal unions. In this paper we explore the role of a new mechanism that may also be central to determining the welfare effects of regional shocks. The degree to which households can use borrowing to smooth location-specific risks depends crucially on the interest rate and how it varies with local economic conditions. In the U.S., the bulk of borrowing occurs through the mortgage market and is heavily influenced by the presence of government-sponsored enterprises (GSEs). We empirically establish that despite large spatial variation in predictable default risk, there is essentially no spatial variation in GSE mortgage rates, conditional on borrower observables. In contrast,...
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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