How Do Mortgage Refinances Affect Debt, Default, and Spending?

How Do Mortgage Refinances Affect Debt, Default, and Spending?

Date: Friday, November 30, 2018
Speaker(s): Joshua Abel, JCHS Meyer Doctoral Fellow and Ph.D. candidate in Economics, Harvard University

12:15 pm, Joint Center for Housing Studies.

How might refinancing a mortgage affect homeowners' financial situations? In this talk, Abel will discuss research that, using data from the Home Affordable Refinance Program (HARP) to identify the causal effect of refinancing a mortgage on borrower balance sheet outcomes, indicates that one average, refinancing into a lower-rate mortgage reduced borrowers' default rates on mortgage and non-mortgage debts by about 40 and 25 percent, respectively. Refinancing—which is more common among borrowers who were in a relatively better financial position to begin with—also led to a net increase in debt equal to about 20 percent of the savings on mortgage payments. In addition, while borrowers with low FICO scores had larger auto and HELOC debts after they refinanced, borrowers with low credit scores or low levels of unused revolving credit also had above average reductions in their bank card balances.

This event is part of our Research Seminar Series, which are held on Fridays at lunchtime, during the academic year, and are live-streamed on Twitter.

Read More About: Housing Markets & Conditions