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Do Large-Scale Refinancing Programs Reduce Mortgage Defaults? Evidence From a Regression Discontinuity Design: Working Paper 2015-06

Author

Listed:
  • Gabriel Ehrlich
  • Jeffrey Perry

Abstract

In 2012, the Federal Housing Administration (FHA) reduced fees to refinance FHA-insured mortgages obtained before---but not after---a retroactive deadline. We use a natural experiment to study how reduced mortgage payments affect default rates. Using a regression discontinuity design, we find that reducing payment size by 1 percent lowers conditional default rates by 2.75 percent. Evidence suggests that those effects are larger for borrowers with negative equity and lower credit scores. We estimate that the policy will prevent more than 35,000 defaults of FHA-insured

Suggested Citation

  • Gabriel Ehrlich & Jeffrey Perry, 2015. "Do Large-Scale Refinancing Programs Reduce Mortgage Defaults? Evidence From a Regression Discontinuity Design: Working Paper 2015-06," Working Papers 50871, Congressional Budget Office.
  • Handle: RePEc:cbo:wpaper:50871
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    File URL: https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/workingpaper/50871-FHA.pdf
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    References listed on IDEAS

    as
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    3. Adelino, Manuel & Gerardi, Kristopher & Willen, Paul S., 2013. "Why don't Lenders renegotiate more home mortgages? Redefaults, self-cures and securitization," Journal of Monetary Economics, Elsevier, vol. 60(7), pages 835-853.
    4. Francesca Castelli & Damien Moore & Gabriel Ehrlich & Jeffrey Perry, 2014. "Modeling the Budgetary Costs of FHA's Single Family Mortgage Insurance: Working Paper 2014-05," Working Papers 45711, Congressional Budget Office.
    5. Andrew Gelman & Guido Imbens, 2019. "Why High-Order Polynomials Should Not Be Used in Regression Discontinuity Designs," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 37(3), pages 447-456, July.
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    12. Hahn, Jinyong & Todd, Petra & Van der Klaauw, Wilbert, 2001. "Identification and Estimation of Treatment Effects with a Regression-Discontinuity Design," Econometrica, Econometric Society, vol. 69(1), pages 201-209, January.
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    Cited by:

    1. Anthony DeFusco & John Mondragon, 2018. "No Job, No Money, No Refi: Frictions to Refinancing in a Recession," 2018 Meeting Papers 1293, Society for Economic Dynamics.
    2. Joshua Abel & Andreas Fuster, 2018. "How do mortgage refinances affect debt, default, and spending? Evidence from HARP," Staff Reports 841, Federal Reserve Bank of New York.
    3. Kadiri Karamon & Douglas McManus & Jun Zhu, 2017. "Refinance and Mortgage Default: A Regression Discontinuity Analysis of HARP’s Impact on Default Rates," The Journal of Real Estate Finance and Economics, Springer, vol. 55(4), pages 457-475, November.

    More about this item

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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