Refinancing, Monetary Policy, and the Credit Cycle

Abstract

We assess the complicated reality of monetary policy transmission through mortgage markets by synthesizing the existing literature on the role of refinancing in policy implementation. After briefly reviewing mortgage market institutions in the USA and documenting refinance activity over time, we summarize the links between refinancing and consumption and describe the frictions impeding the refinancing channel. The review draws heavily on research emerging from the experience of the financial crisis of 2008–2009, as it highlights a combination of market, institutional, and policy-making factors that dulled the transmission mechanism. We conclude with a discussion of potential mortgage market innovations and the applicability of lessons learned to the ongoing stresses induced by the COVID-19 pandemic. Expected final online publication date for the Annual Review of Financial Economics, Volume 12 is November 2, 2020. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

COVID-19’s impact on real estate markets: review and outlook

“…In contrast to Capponi et al (2020), Amromin et al (2020) highlight that in case of widespread economic disruption, like the COVID-19 pandemic, large-scale regulatory measures may place considerable pressure on the housing finance system. As an example, the authors mention the extensive use of mortgage forbearance threatening the liquidity of mortgage servicers that must replace borrower payments to investors during the early stages of the COVID-19 outbreak.…”

How Resilient Is Mortgage Credit Supply? Evidence from the COVID-19 Pandemic

“…The evidence in this paper adds to a large body of research about the transmission of monetary policy and interest rate shocks through the mortgage market and the role of financial frictions, including Berger et al (2020), Di Maggio et al (2017, Fuster et al (2013), and; see Amromin et al (2020) for a recent review. Our results are also related to research on the growing presence of nonbank mortgage intermediaries, which now originate more than half of new loans and are more sensitive to liquidity risk (Kim et al, 2018;Jiang et al, 2020;Buchak et al, 2018).…”

How Resilient Is Mortgage Credit Supply? Evidence from the COVID-19 Pandemic

“…The evidence in this paper adds to a large body of research about the transmission of monetary policy and interest rate shocks through the mortgage market and the role of financial frictions, including Berger et al (2020), Di Maggio et al (2017, Fuster et al (2013), ; see Amromin et al (2020) for a recent review. Our results are also related to research on the growing presence of nonbank mortgage intermediaries, which now originate more than half of new loans and are more sensitive to liquidity risk (Kim et al, 2018;Jiang et al, 2020;Buchak et al, 2018).…”