The Effect of Mortgage Forbearance on Refinancing: Evidence from the CARES Act

Abstract

This paper examines the effect of foreclosure prevention policies on refinancing. Through a
counterfactual analysis, we show that the foreclosure moratorium enacted by the CARES Act
decreases significantly the refinancing cost of households and relaxes their refinancing eligibility constraints. Our results imply that granting forbearance to households facing foreclosures
has positive externalities on a broader range of households with refinancing needs. Mortgage
forbearance thus amplifies the stimulative effect of monetary policies,

Keywords: Foreclosure, Refinancing, Mortgage Forbearance, Monetary Policy

JEL Classification: G0, G1, G2, G15, C52, I10