Refinance and Mortgage Default: A Regression Discontinuity Analysis of HARP’s Impact on Default Rates

Karamon, Kadiri; McManus, Douglas A.; Zhu, Jianrong

doi:10.1007/s11146-016-9566-z

Cited by 20 publications

(19 citation statements)

References 14 publications

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“…These findings are in line with recent studies that show large effects of refinancing FRMs on mortgage default. Karamon et al (2016) smaller than the 40% we find. 33…”

Section: Resultscontrasting

confidence: 74%

“…There are two months with particularly large spikes in guarantee activity, but these are March and June of 2009-the former being far in advance of the cutoff date (and essentially concurrent with the announcement of the program) and the latter being too late to maintain eligibility. 24 Furthermore, while our data does not contain information on the specific day that a loan was guaranteed, Karamon et al (2016)'s Freddie Mac data does, and they show that guarantee volume is smooth through the cutoff date, as are the observables of the borrowers. Finally, in Appendix A.1 we further test whether securitization speeds for loans in our sample vary by LTV (since HARP eligibility was differentially valuable for different LTV ranges) but find no systematic evidence for this.…”

Section: Was There Non-random Sorting Around the Cutoff Date?mentioning

confidence: 90%

mentioning

confidence: 96%

“…Most closely related to our work are papers by Karamon et al (2016) and Ehrlich and Perry (2015). Karamon et al (2016) exploit the same HARP cutoff as we do, using Freddie Mac internal data, to study the effect of a HARP refinance on mortgage default. 2 Ehrlich and Perry (2015) similarly rely on a date-based eligibility cutoff embedded in a streamlined refinance program of the Federal Housing Administration.…”

mentioning

confidence: 96%

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How Do Mortgage Refinances Affect Debt, Default, and Spending? Evidence from HARP

Abel

Fuster

2021

American Economic Journal: Macroeconomics

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We use quasi-random access to the Home Affordable Refinance Program (HARP) to identify the causal effect of refinancing into a lower-rate mortgage on borrower balance sheet outcomes. Refinancing substantially reduces borrower default rates on mortgages and other debt. Refinancing also causes borrowers to expand their use of debt instruments, such as auto loans, home equity lines, and other consumer debts that are proxies for spending. Borrowers that appear more constrained ex ante grow these debts more strongly after refinancing but also pay down credit card balances by more. These borrowers also have lower take-up of the refinancing opportunity. (JEL G51, G21, E52)

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“…These findings are in line with recent studies that show large effects of refinancing FRMs on mortgage default. Karamon et al (2016) smaller than the 40% we find. 33…”

Section: Resultscontrasting

confidence: 74%

Section: Was There Non-random Sorting Around the Cutoff Date?mentioning

confidence: 90%

mentioning

confidence: 96%

mentioning

confidence: 96%

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How Do Mortgage Refinances Affect Debt, Default, and Spending? Evidence from HARP

Abel

Fuster

2021

American Economic Journal: Macroeconomics

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“…Altogether, approximately 3.5 million loans were refinanced through HARP before the program ended in 2018. There is evidence that the program had beneficial effects by reducing mortgage default and increasing consumer spending (Agarwal et al (2015); Karamon, McManus, and Zhu (2017); and Abel and Fuster (2019)). Although HARP applied only to Fannie Mae and Freddie Mac loans, the two principal Ginnie Mae loan programs-the Federal Housing Administration (FHA) and Department of Veteran Affairs (VA)-have had their own streamlined refinance programs for some time.…”

Section: Harp and Other Government Streamlined Refinancesmentioning

confidence: 99%

Evaluating the Benefits of a Streamlined Refinance Program

Gerardi

Loewenstein

Willen

2020

Working Paper (Federal Reserve Bank of Cleveland)

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Mortgage borrowers who have experienced employment disruptions as a result of the COVID-19 pandemic are unable to refinance their loans to take advantage of historically low market rates. In this article, we analyze the effects of a streamlined refinance ("refi") program for government-insured loans that would allow borrowers to refinance without needing to document employment or income. In addition, we consider a cash-out component that would allow borrowers to extract some of the substantial housing equity that many have accumulated in recent years. JEL codes: R30, R38.

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Optimal refinancing strategy for mortgage rate with regime switching

Zhou

Wang

Jie

2021

Appl Stoch Models Bus & Ind

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We investigate an optimal refinancing problem for an interest-only mortgage, where the market mortgage rate is defined as the classical Black-Scholes geometric Brownian motion with regime switching. We verify that the optimal refinancing strategy only depends on the quotient between the market mortgage rate and the borrowing rate. We show that the optimal refinancing strategy is of threshold type. By reducing the two-dimensional optimal refinancing problem to a one-dimensional problem, we obtain the system of equations that the function with respect to quotient satisfies. Analytic solutions are obtained in one-and two-regime cases. Finally, we present some numerical results to illustrate the influence of the model parameters on the optimal refinancing strategy.

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Refinance and Mortgage Default: A Regression Discontinuity Analysis of HARP’s Impact on Default Rates

Cited by 20 publications

References 14 publications

How Do Mortgage Refinances Affect Debt, Default, and Spending? Evidence from HARP

How Do Mortgage Refinances Affect Debt, Default, and Spending? Evidence from HARP

Evaluating the Benefits of a Streamlined Refinance Program

Optimal refinancing strategy for mortgage rate with regime switching

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