TY  - JOUR
AU  - Caplin,Andrew
AU  - Freeman,Charles
AU  - Tracy,Joseph
TI  - Collateral Damage: How Refinancing Constraints Exacerbate Regional      Recessions
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4531
PY  - 1993
Y2  - November 1993
UR  - http://www.nber.org/papers/w4531
L1  - http://www.nber.org/papers/w4531.pdf
N1  - Author contact info:
Andrew Caplin
Department of Economics
New York University
19 W. 4th Street, 6th Floor
New York, NY  10012
Tel: 212/998-8950
Fax: 212/995-3932
E-Mail: andrew.caplin@nyu.edu

Joseph Tracy
Executive Vice President
Federal Reserve Bank of New York
33 Liberty Street
New York, NY 10045
Tel: 212/720-6344
E-Mail: joseph.tracy@ny.frb.org
AB  - In the current structure of the U.S. residential mortgage market, a fall in property values may make it very difficult for homeowners to refinance their mortgages to take advantage of falling interest rates. In this paper, we explain the institutional background for this effect and quantify its importance.  We confirm that this form of collateral constraint has greatly reduced recent refinancing in states with depressed property markets.  We also point to the many ways in which the reduction in refinancing may have inflicted additional damage in these already recession-hit states.  Finally, we show that relatively minor institutional changes could have neutralized the damaging effects of the collateral constraints, and we discuss why the institutions have their current structure.
ER  -