Structural change in the mortgage market and the propensity to refinance
AbstractWe hypothesize that the intrinsic benefit required to trigger a refinancing has become smaller, due to a combination of technological, regulatory, and structural changes that have made mortgage origination more competitive and more efficient. To test this hypothesis, we estimate an empirical hazard model of loan survival for two subperiods, using a database that allows us to carefully control for homeowners' credit ratings, equity, loan size, and measurable transaction costs. Our findings strongly confirm that credit ratings and home equity have significant effects on refinancing probability. In addition, we provide evidence that homeowners postpone refinancing in the face of increased interest rate volatility, consistent with option value theory. Finally, our results clearly support the hypothesis that structural change in the mortgage market has increased homeowners' propensity to refinance.
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Bibliographic InfoPaper provided by Federal Reserve Bank of New York in its series Research Paper with number 9736.
Date of creation: 1997
Date of revision:
Other versions of this item:
- Bennett, Paul & Peach, Richard & Peristiani, Stavros, 2001. "Structural Change in the Mortgage Market and the Propensity to Refinance," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(4), pages 955-75, November.
- Paul Bennett & Richard Peach & Stavros Peristiani, 1998. "Structural change in the mortgage market and the propensity to refinance," Staff Reports 45, Federal Reserve Bank of New York.
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