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Author(s)

Anthony DeFusco

John Mondragon

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.
Date Published: 2020
Citations: DeFusco, Anthony, John Mondragon. 2020. No Job, No Money, No Refi: Frictions to Refinancing in a Recession. Journal of Finance. (5)2327-2376.