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Research Details

No Job, No Money, No Refi: Frictions to Refinancing in a Recession

Abstract

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.

Type

Working Paper

Author(s)

John Mondragon, John Mondragon, Anthony DeFusco

Date Published

2018

Citations

Mondragon, John, John Mondragon, and Anthony DeFusco. 2018. No Job, No Money, No Refi: Frictions to Refinancing in a Recession.

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