No Job, No Money, No Refi: Frictions to Refinancing in a Recession

Abstract

We study how employment documentation requirements and out‐of‐pocket closing costs constrain mortgage refinancing. These frictions, which bind most severely during recessions, may significantly inhibit monetary policy pass‐through. To study their effects on refinancing, we exploit a Federal Housing Administration policy change that excluded unemployed borrowers from refinancing and increased others' out‐of‐pocket costs substantially. These changes dramatically reduced refinancing rates, particularly among the likely unemployed and those facing new out‐of‐pocket costs. Our results imply that unemployed and liquidity‐constrained borrowers have a high latent demand for refinancing. Cyclical variation in these factors may therefore affect both the aggregate and distributional consequences of monetary policy.

Tracing the source of liquidity for distressed housing markets

“…7 In fact, subsequent to the FHFA's REO-to-Rental initiative, many banks also implemented the bulk-sale strategy, suggesting that bulk sales were a viable solution to clearing banks' REO inventories. 8 More generally, our results also contribute to the policy debate and challenges in dealing with large inventories of foreclosed properties in areas with declining property values (e.g., Agarwal et al, 2017aAgarwal et al, , 2017bBerger et al, 2016;DeFusco & Mondragon, 2020;Di Maggio et al, 2017;Griffin et al, 2021;Mian et al, 2015;Piskorski & Seru, 2018). This was particularly challenging in the 2008 financial crisis during which the overall credit conditions had tightened, especially for individual home buyers (D'Acunto & Rossi, 2017).…”

Heterogeneity of Mortgage Refinancing Channel in Russian Regions

“…4 [8,10,14]. Пространственной гетерогенности рефинансирования ипотеки способствует положительная взаимосвязь рефинансирования с ценами на жилье [8][9][10], финансовой грамотностью [16] и кредитными рейтингами [17] заемщиков, и отрицательная -с численностью безработных [18]. Эти доказанные факты позволили сделать вывод, что стимулы ДКП не оказали эффекта в депрессивных регионах, которые в них наиболее нуждались.…”

Debt‐relief programs and money left on the table: Evidence from Canada's response to COVID‐19

“…Given the extent of political intervention and the reputational risk that refusals may have entailed for financial institutions, mortgage and credit card deferral requests were nearly universally accepted with overall denial rates for each product below 3%. Furthermore, requesting a deferral did not involve any monetary costs—this factor therefore cannot explain the low take‐up rates the way it may rationalize limited refinancing (see, for instance, Defusco and Mondragon 2020 ). Lastly, we should point out that it is very unlikely the reason revolvers did not defer their credit cards was because they had somehow paid off their credit card debt: less than 10% of revolvers became convenience users within four months of March 2020.…”