NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

Mortgage Refinancing, Consumer Spending, and Competition: Evidence from the Home Affordable Refinancing Program

Sumit Agarwal, Gene Amromin, Souphala Chomsisengphet, Tim Landvoigt, Tomasz Piskorski, Amit Seru, Vincent Yao

NBER Working Paper No. 21512
Issued in August 2015, Revised in October 2017
NBER Program(s):Corporate Finance, Economic Fluctuations and Growth, Industrial Organization, Monetary Economics, Asset Pricing, Public Economics

Using proprietary loan-level data, we examine the ability of the government to impact mortgage refinancing activity and spur consumption by focusing on the Home Affordable Refinancing Program (HARP). The policy relaxed housing equity constraints by extending government credit guarantee on insufficiently collateralized mortgages refinanced by intermediaries. Difference-in-difference tests based on program eligibility criteria reveal a significant increase in refinancing activity by HARP. More than three million eligible borrowers with primarily fixed-rate mortgages refinanced under HARP, receiving an average reduction of 1.4% in interest rate that amounts to $3,500 in annual savings. Durable spending by borrowers increased significantly after refinancing, with larger increase among more indebted borrowers. Regions more exposed to the program saw a relative increase in non-durable and durable consumer spending, a decline in foreclosure rates, and faster recovery in house prices. A variety of identification strategies suggest that competitive frictions in the refinancing market partly hampered the program’s impact: the take-up rate was reduced by 10% to 20% and annual savings lower by $400 to $800 among those who refinanced. These effects were amplified for the most indebted borrowers, the key target of the program. A life-cycle model of refinancing quantitatively rationalizes these patterns and produces significant welfare gains from altering the refinancing market by removing the housing equity eligibility constraint, like HARP did, and by lowering competitive frictions. Our work has implications for future policy interventions, pass-through of monetary policy through household balance-sheets and design of the mortgage market.

download in pdf format
   (946 K)

email paper

A non-technical summary of this paper is available in the November 2015 NBER digest.  You can sign up to receive the NBER Digest by email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w21512

Users who downloaded this paper also downloaded* these:
Agarwal, Amromin, Ben-David, Chomsisengphet, Piskorski, and Seru w18311 Policy Intervention in Debt Renegotiation: Evidence from the Home Affordable Modification Program
Beaudry, Fève, Guay, and Portier w21466 When is Nonfundamentalness in VARs a Real Problem? An Application to News Shocks
Keys, Piskorski, Seru, and Yao w20561 Mortgage Rates, Household Balance Sheets, and the Real Economy
Ball w20185 Long-Term Damage from the Great Recession in OECD Countries
Keys, Pope, and Pope w20401 Failure to Refinance
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us