Refinancing Inequality During the COVID-19 Pandemic

86 Pages Posted: 16 Dec 2020 Last revised: 26 Feb 2023

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Souphala Chomsisengphet

Government of the United States of America - Office of the Comptroller of the Currency (OCC)

Hua Kiefer

FDIC

Leonard C. Kiefer

Federal Home Loan Mortgage Corporation (FHLMC)

Paolina C. Medina

University of Houston

Multiple version iconThere are 2 versions of this paper

Date Written: February 3, 2023

Abstract

We study the distribution of savings from mortgage refinancing across income groups during the COVID-19 pandemic. Between February and June 2020, the difference in savings from refinancing between high- and low-income borrowers was ten times higher than before the pandemic. This was the result of two factors: individuals in the top quintile of the income distribution increased their refinancing activity more than comparable borrowers in the bottom quintile and, conditional on refinancing, they captured slightly larger improvements in interest rates. Exploiting idiosyncratic variation in COVID-19 case rates within zip codes over time, we find that changes in local economic conditions explain up to 74 percent of the increase in refinancing inequality tied to the pandemic. Using data on refinancing applications and funding rates we find that, conditional on applying, the funding rates and processing times for low-income borrowers were not differentially affected by the pandemic. Instead, low-income borrowers were underrepresented in the pool of applications. We estimate a difference of $5 billion in savings from refinancing between the top quintile of the income distribution and the rest of the market. This discrepancy has implications for the transmission of monetary policy and the evolution of wealth inequality.

Keywords: Mortgage Market, Refinancing, COVID-19, Wealth Inequality

JEL Classification: G21, D14, E43

Suggested Citation

Agarwal, Sumit and Chomsisengphet, Souphala and Kiefer, Hua and Kiefer, Leonard C. and Medina, Paolina C., Refinancing Inequality During the COVID-19 Pandemic (February 3, 2023). Available at SSRN: https://ssrn.com/abstract=3750133 or http://dx.doi.org/10.2139/ssrn.3750133

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Souphala Chomsisengphet

Government of the United States of America - Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street SW
Washington, DC 20219
United States

Hua Kiefer

FDIC ( email )

550 17th Street NW
Washington, DC 20429
United States

Leonard C. Kiefer (Contact Author)

Federal Home Loan Mortgage Corporation (FHLMC) ( email )

8200 Jones Branch Road
McLean, VA 22101
United States

Paolina C. Medina

University of Houston ( email )

4750 Martin Luther King Blvd
Houston, TX 77204-60
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
715
Abstract Views
3,689
Rank
56,626
PlumX Metrics