Refinancing frictions, mortgage pricing and redistribution

There are large cross-sectional differences in how often US borrowers refinance mortgages. In this paper, we develop a tractable equilibrium mortgage pricing model that allows us to explore the consequences of this heterogeneity. We show that equilibrium forces imply important cross-subsidies from borrowers who rarely refinance to those who refinance often. Mortgage reforms can potentially reduce these regressive cross-subsidies, but the equilibrium effects of these reforms can also have important distributional consequences. For example, many policies which lead to more frequent refinancing lead to higher equilibrium mortgage rates and reduce residential mortgage credit access for a large number of borrowers.