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

68 Pages Posted: 24 Aug 2018 Last revised: 14 Jan 2020

See all articles by Anthony DeFusco

Anthony DeFusco

University of Wisconsin - Madison; National Bureau of Economic Research (NBER)

John Mondragon

Northwestern University

Date Written: January 7, 2020


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 an FHA 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.

Keywords: Mortgage Refinancing, Financial Frictions, Unemployment, Liquidity Constraints, Monetary Policy

JEL Classification: D14, E52, G21, G28, R28, R30

Suggested Citation

DeFusco, Anthony and Mondragon, John, No Job, No Money, No Refi: Frictions to Refinancing in a Recession (January 7, 2020). Journal of Finance, Forthcoming, Available at SSRN: or

Anthony DeFusco (Contact Author)

University of Wisconsin - Madison ( email )

716 Langdon Street
Madison, WI 53706-1481
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

John Mondragon

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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