How Do Mortgage Refinances Affect Debt, Default, and Spending? Evidence from HARP

55 Pages Posted: 1 Mar 2018 Last revised: 20 Nov 2019

See all articles by Joshua Abel

Joshua Abel

Harvard University - Department of Economics

Andreas Fuster

Swiss National Bank - Financial Stability

Date Written: August 5, 2019

Abstract

We use quasi-random access to the Home Affordable Refinance Program (HARP) to identify the causal effect of refinancing into a lower-rate mortgage on borrower balance sheet outcomes. Refinancing substantially reduces borrower default rates on mortgages and other debt. Refinancing also causes borrowers to expand their use of debt instruments, such as auto loans, home equity lines, and other consumer debts that are proxies for spending. Borrowers that appear more constrained ex-ante grow these debts more strongly after refinancing but also pay down credit card balances by more. These borrowers also have lower take-up of the refinancing opportunity.

Keywords: mortgages, refinancing, monetary policy transmission, heterogeneity, HARP

JEL Classification: D14, E21, G21

Suggested Citation

Abel, Joshua and Fuster, Andreas, How Do Mortgage Refinances Affect Debt, Default, and Spending? Evidence from HARP (August 5, 2019). FRB of New York Staff Report No. 841, Available at SSRN: https://ssrn.com/abstract=3132012 or http://dx.doi.org/10.2139/ssrn.3132012

Joshua Abel

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States

Andreas Fuster (Contact Author)

Swiss National Bank - Financial Stability ( email )

Boersenstrasse 15
Zurich, CH-8022
Switzerland

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