Research Details

Abstract

There is a growing body of work showing that households refinance residential mortgages sub-optimally, with large differences in the cross-section. In this paper, we develop an equilibrium mortgage pricing model that allows us to explore the consequences of this heterogeneity in a pooling equilibrium, such as in the US conforming mortgage market. Specifically, we show that substantial cross-subsidies arise from “un-sophisticated” to “sophisticated” households. We analyze policies to potentially address this redistribution, such as increasing attentiveness and mortgage contract design. Popular policies, such as financial literacy programs, can have unintended consequence. We discuss a novel channel to wealth inequality coming from the liability side of a household’s balance sheet.

Type

Working Paper

Author(s)

Konstantin Milbradt, David Berger, Joe Vavra, Fabrice Tourre

Date Published

2022

Citations

Milbradt, Konstantin, David Berger, Joe Vavra, and Fabrice Tourre. 2022. Inattentive Households, Mortgage Redistribution, and Inequality.