Mortgage Refinancing, Consumer Spending, and Competition: Evidence from the Home Affordable Refinancing Program

78 Pages Posted: 31 Aug 2015 Last revised: 13 Apr 2023

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Gene Amromin

Federal Reserve Bank of Chicago

Souphala Chomsisengphet

Government of the United States of America - Office of the Comptroller of the Currency (OCC)

Tomasz Piskorski

Columbia University - Columbia Business School, Finance

Amit Seru

Stanford University

Vincent Yao

Georgia State University - J. Mack Robinson College of Business

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Date Written: August 2015

Abstract

Using loan-level mortgage data merged with consumer credit records, we examine the ability of the government to impact mortgage refinancing activity and spur consumption by focusing on the Home Affordable Refinance Program (HARP). The policy relaxed housing equity constraints by extending government credit guarantee on insufficiently collateralized mortgages refinanced by intermediaries. Difference-in-difference tests based on program eligibility criteria reveal a significant increase in refinancing activity by HARP. More than three million eligible borrowers with primarily fixed-rate mortgages refinanced under HARP, receiving an average reduction of 1.45% in interest rate that amounts to $3,000 in annual savings. Durable spending by borrowers increased significantly after refinancing and regions more exposed to the program saw a relative increase in non-durable and durable consumer spending, a decline in foreclosure rates, and faster recovery in house prices. A variety of identification strategies suggest that competitive frictions in the refinancing market partly hampered the program’s impact: the take-up rate and annual savings among those who refinanced were reduced by 10% to 20%. These effects were amplified for the most indebted borrowers, the key target of the program. These findings have implications for future policy interventions, pass-through of monetary policy through household balance-sheets and design of the mortgage market.

Suggested Citation

Agarwal, Sumit and Amromin, Gene and Chomsisengphet, Souphala and Piskorski, Tomasz and Seru, Amit and Yao, Vincent, Mortgage Refinancing, Consumer Spending, and Competition: Evidence from the Home Affordable Refinancing Program (August 2015). NBER Working Paper No. w21512, Available at SSRN: https://ssrn.com/abstract=2653523

Sumit Agarwal (Contact Author)

National University of Singapore ( email )

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HOME PAGE: http://www.ushakrisna.com

Gene Amromin

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
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Chicago, IL 60604
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Souphala Chomsisengphet

Government of the United States of America - Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street SW
Washington, DC 20219
United States

Tomasz Piskorski

Columbia University - Columbia Business School, Finance ( email )

3022 Broadway
New York, NY 10027
United States

Amit Seru

Stanford University ( email )

Stanford, CA 94305
United States

Vincent Yao

Georgia State University - J. Mack Robinson College of Business ( email )

P.O. Box 4050
Atlanta, GA 30303-3083
United States

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