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Refinancing Frictions, Mortgage Pricing and Redistribution

Author

Listed:
  • David W. Berger
  • Konstantin Milbradt
  • Fabrice Tourre
  • Joseph S. Vavra

Abstract

There are large cross-sectional differences in how often US borrowers refinance mortgages. In this paper, we develop an equilibrium mortgage pricing model with heterogeneous borrowers and use it to show that equilibrium forces imply important cross-subsidies from borrowers who rarely refinance to those who refinance often. Mortgage reforms can potentially reduce these regressive cross-subsidies, but the equilibrium effects of these reforms can also have important distributional consequences. For example, many policies that lead to more frequent refinancing also increase equilibrium mortgage rates and thus reduce residential mortgage credit access for a large number of borrowers.

Suggested Citation

  • David W. Berger & Konstantin Milbradt & Fabrice Tourre & Joseph S. Vavra, 2024. "Refinancing Frictions, Mortgage Pricing and Redistribution," NBER Working Papers 32022, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32022
    Note: CF EFG ME
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    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G5 - Financial Economics - - Household Finance
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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