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

Joshua Abel | Zendy; Andreas Fuster | Zendy

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

Author(s) -

Joshua Abel,

Andreas Fuster

Publication year - 2021

Publication title -

american economic journal macroeconomics

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 10.443

H-Index - 61

eISSN - 1945-7707

pISSN - 1945-7715

DOI - 10.1257/mac.20180116

Subject(s) - debt , home equity , monetary economics , floating interest rate , credit card , default , business , balance sheet , equity (law) , economics , financial system , interest rate , finance , payment , political science , law

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. (JEL G51, G21, E52)

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