Houses as ATMs? Mortgage Refinancing and Macroeconomic Uncertainty

79 Pages Posted: 22 Jun 2012 Last revised: 23 Nov 2018

See all articles by Hui Chen

Hui Chen

Massachusetts Institute of Technology; National Bureau of Economic Research (NBER)

Michael Michaux

University of Southern California - Marshall School of Business

Nikolai L. Roussanov

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: November 7, 2018

Abstract

Mortgage refinancing activity associated with extraction of home equity contains a strongly counter-cyclical component consistent with household demand for liquidity. We estimate a structural model of liquidity management featuring counter-cyclical idiosyncratic labor income uncertainty, both long-term and short-term mortgages, and realistic borrowing constraints. We then empirically evaluate its predictions for the households' choices of leverage, liquid assets, and mortgage refinancing using micro-level data. Taking the observed historical paths of house prices, aggregate income, and interest rates as given, the model quantitatively accounts for many salient features in the evolution of balance sheets and consumption in the cross section of households over the 2001-2012 period.

Keywords: mortgage refinancing, home equity, housing collateral, liquidity constraints, household consumption and saving decisions, leverage

JEL Classification: E21, E44, G2

Suggested Citation

Chen, Hui and Michaux, Michael and Roussanov, Nikolai L., Houses as ATMs? Mortgage Refinancing and Macroeconomic Uncertainty (November 7, 2018). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2024392 or http://dx.doi.org/10.2139/ssrn.2024392

Hui Chen

Massachusetts Institute of Technology ( email )

50 Memorial Drive
Cambridge, MA 02142
United States
617-324-3896 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Michael Michaux

University of Southern California - Marshall School of Business ( email )

Marshall School of Business, FBE
3670 Trousdale Parkway, BRI-308
Los Angeles, CA 90089
United States

HOME PAGE: http://www-bcf.usc.edu/~michaux/

Nikolai L. Roussanov (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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