Michael C. Bailey, E. Dávila, Theresa Kuchler, J. Stroebel
We study the relationship between homebuyers’ beliefs about future house price changes and their mortgage leverage choices. Whether more pessimistic homebuyers choose higher or lower leverage depends on their willingness and ability to reduce the size of their housing market investments. When households primarily maximize the levered return of their property investments, more pessimistic homebuyers reduce their leverage to purchase smaller houses. On the other hand, when considerations such as family size pin down the desired property size, pessimistic homebuyers reduce their financial exposure to the housing market by making smaller downpayments to buy similarly-sized homes. To determine which scenario better describes the data, we investigate the cross-sectional relationship between house price beliefs and mortgage leverage choices in the U.S. housing market. We use plausibly exogenous variation in house price beliefs to show that more pessimistic homebuyers make smaller downpayments and choose higher leverage, in particular in states where default costs are relatively low, as well as during periods when house prices are expected to fall on average. Our results highlight the important role of heterogeneous beliefs in explaining households’ financial decisions.
{"title":"House Price Beliefs and Mortgage Leverage Choice","authors":"Michael C. Bailey, E. Dávila, Theresa Kuchler, J. Stroebel","doi":"10.2139/ssrn.3001866","DOIUrl":"https://doi.org/10.2139/ssrn.3001866","url":null,"abstract":"\u0000 We study the relationship between homebuyers’ beliefs about future house price changes and their mortgage leverage choices. Whether more pessimistic homebuyers choose higher or lower leverage depends on their willingness and ability to reduce the size of their housing market investments. When households primarily maximize the levered return of their property investments, more pessimistic homebuyers reduce their leverage to purchase smaller houses. On the other hand, when considerations such as family size pin down the desired property size, pessimistic homebuyers reduce their financial exposure to the housing market by making smaller downpayments to buy similarly-sized homes. To determine which scenario better describes the data, we investigate the cross-sectional relationship between house price beliefs and mortgage leverage choices in the U.S. housing market. We use plausibly exogenous variation in house price beliefs to show that more pessimistic homebuyers make smaller downpayments and choose higher leverage, in particular in states where default costs are relatively low, as well as during periods when house prices are expected to fall on average. Our results highlight the important role of heterogeneous beliefs in explaining households’ financial decisions.","PeriodicalId":196559,"journal":{"name":"LSN: Consumer Credit Issues (Sub-Topic)","volume":"19 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-07-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133254647","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We document and analyze price dispersion in the U.S. mortgage market. We find significant price dispersion in posted prices in the retail channel: for example, a consumer with a prime credit score and with a 20% down payment for a conforming loan might see a spread in interest rates of 50 basis points, controlling for all relevant consumer/property characteristics, including discount points. This amounts to extra 342 dollars per year, for every 100,000 of the loan. We also show, from survey evidence, that close to half of consumers did not shop before taking out a mortgage, and that most consumers do not seem to realize that there is price dispersion. Using a proprietary dataset of lenders' ratesheets, we estimate an equilibrium model of costly search where majority of consumers hold incorrect beliefs regarding price dispersion. In addition to search costs, we show that non-price factors, such as consumer preference of one lender over another, also play an important role in preventing consumers from searching more. In one of our counterfactuals, we show that if 20% of consumers had obtained one extra quote, consumers would save $4 billion dollars a year, most coming from the indirect/equilibrium effect of firms lowering prices in response to more shopping. In another counterfactual, we show that if consumers were to focus on mortgage cost only, they would save about $9 billion dollars a year.
{"title":"No Shopping in the U.S. Mortgage Market: Direct and Strategic Effects of Providing Information","authors":"A. Alexandrov, Sergei Koulayev","doi":"10.2139/ssrn.2948491","DOIUrl":"https://doi.org/10.2139/ssrn.2948491","url":null,"abstract":"We document and analyze price dispersion in the U.S. mortgage market. We find significant price dispersion in posted prices in the retail channel: for example, a consumer with a prime credit score and with a 20% down payment for a conforming loan might see a spread in interest rates of 50 basis points, controlling for all relevant consumer/property characteristics, including discount points. This amounts to extra 342 dollars per year, for every 100,000 of the loan. We also show, from survey evidence, that close to half of consumers did not shop before taking out a mortgage, and that most consumers do not seem to realize that there is price dispersion. Using a proprietary dataset of lenders' ratesheets, we estimate an equilibrium model of costly search where majority of consumers hold incorrect beliefs regarding price dispersion. In addition to search costs, we show that non-price factors, such as consumer preference of one lender over another, also play an important role in preventing consumers from searching more. In one of our counterfactuals, we show that if 20% of consumers had obtained one extra quote, consumers would save $4 billion dollars a year, most coming from the indirect/equilibrium effect of firms lowering prices in response to more shopping. In another counterfactual, we show that if consumers were to focus on mortgage cost only, they would save about $9 billion dollars a year.","PeriodicalId":196559,"journal":{"name":"LSN: Consumer Credit Issues (Sub-Topic)","volume":"5 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-03-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130523425","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Khrystyna Bochkay, Indraneel Chakraborty, Roman Chychyla, Alok Kumar
Using the propensity to engage in extra-marital activities as a proxy for sensation seeking behavior, we show that sensation-seeking households exhibit riskier economic behavior. They are more likely to obtain a home loan and, conditional upon borrowing, they choose larger loans. Banks are at least partially aware of the financial implications of sensation-seeking behavior. They supply larger credit due to higher demand, but at higher rates due to greater perceived risks. The resulting separating equilibrium has higher loan defaults as the perceived risk is realized.
{"title":"Lending to Sensation-Seeking Households","authors":"Khrystyna Bochkay, Indraneel Chakraborty, Roman Chychyla, Alok Kumar","doi":"10.2139/ssrn.2821378","DOIUrl":"https://doi.org/10.2139/ssrn.2821378","url":null,"abstract":"Using the propensity to engage in extra-marital activities as a proxy for sensation seeking behavior, we show that sensation-seeking households exhibit riskier economic behavior. They are more likely to obtain a home loan and, conditional upon borrowing, they choose larger loans. Banks are at least partially aware of the financial implications of sensation-seeking behavior. They supply larger credit due to higher demand, but at higher rates due to greater perceived risks. The resulting separating equilibrium has higher loan defaults as the perceived risk is realized.","PeriodicalId":196559,"journal":{"name":"LSN: Consumer Credit Issues (Sub-Topic)","volume":"15 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-10-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134412967","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2016-04-28DOI: 10.22459/NDLA.09.2017.06
G. North
The scope and efficacy of regulation around mortgage lending in Australia is critical, not just for the health of financial institutions and financial stability, but also for the financial position and wellbeing of Australian households. The biggest risk presently is complacency. Banks are likely to continue to lend to residential property owners because the existing capital rules and returns encourage it. Similarly, Australians are likely to continue to invest in housing, with tax incentives to do so and a dearth of other savings opportunities that provide a reasonable return. However, the housing party in Australia will inevitably end at some point and the severity of the hangover will depend on the nature and scale of advance action taken by law makers and regulators. The further house prices rise above normal trend lines and economic fundamentals, the more severe the potential corrections and adverse consequences are likely to be, particularly on highly indebted households. Some housing related policy adjustments have been made over the last year, but further action is called for.
{"title":"The Australian House Party Has Been Glorious - But the Hangover May Be Severe: Reforms to Mitigate Some of the Risks","authors":"G. North","doi":"10.22459/NDLA.09.2017.06","DOIUrl":"https://doi.org/10.22459/NDLA.09.2017.06","url":null,"abstract":"The scope and efficacy of regulation around mortgage lending in Australia is critical, not just for the health of financial institutions and financial stability, but also for the financial position and wellbeing of Australian households. The biggest risk presently is complacency. Banks are likely to continue to lend to residential property owners because the existing capital rules and returns encourage it. Similarly, Australians are likely to continue to invest in housing, with tax incentives to do so and a dearth of other savings opportunities that provide a reasonable return. However, the housing party in Australia will inevitably end at some point and the severity of the hangover will depend on the nature and scale of advance action taken by law makers and regulators. The further house prices rise above normal trend lines and economic fundamentals, the more severe the potential corrections and adverse consequences are likely to be, particularly on highly indebted households. Some housing related policy adjustments have been made over the last year, but further action is called for.","PeriodicalId":196559,"journal":{"name":"LSN: Consumer Credit Issues (Sub-Topic)","volume":"11 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-04-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132876830","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Tell me who your friends are and I will tell you who you are. This ancient social philosophy is at the heart of a new financial technology system – social credit. In recent years, loosely regulated marketplace lenders have increasingly developed methods to rank individuals, including some traditionally considered unscored or credit-less. Specifically, some lenders built their score-generating algorithms around behavioral data gleaned from social media and social networking information, including the quantity and quality of social media presence, the identity and features of the applicant’s contacts, the applicant’s online social ties and interactions, the applicant’s contacts’ financial standing, the applicant’s personality attributes as extracted from her online footprints, and more.This Article studies the potential consequences of social credit systems predicated on a simple transaction: authorized use of highly personal information in return for better interest rates. Following a detailed description of emerging social credit systems, the Article analyzes the inclination of rational and irrational customers to be socially active online and/or disclose all their online social-related information for financial ranking purposes. This examination includes, inter alia, consumers’ preferences as well as mistakes, gamesmanship, and consumers’ self-doxing or lack thereof. The Article then moves to discuss policy challenges triggered by social-based financial ranking that may become the new creditworthiness baseline criteria. It focuses on (i) direct privacy harms to loan seekers, and derivative privacy harm to loan seekers’ online contacts or followers, (ii) online social segregation potentially mirrored by offline social polarization, and (iii) due process violations derived from algorithmic decision-making and unsupervised machine learning. The Article concludes by making a significant normative contribution, introducing a limited “right to be un-networked,” to accommodate the welcomed aspects of social credit systems while mitigating many of their undesired consequences.
{"title":"On Social Credit and the Right to Be Unnetworked","authors":"Nizan Geslevich Packin, Yafit Lev Aretz","doi":"10.2139/ssrn.2728414","DOIUrl":"https://doi.org/10.2139/ssrn.2728414","url":null,"abstract":"Tell me who your friends are and I will tell you who you are. This ancient social philosophy is at the heart of a new financial technology system – social credit. In recent years, loosely regulated marketplace lenders have increasingly developed methods to rank individuals, including some traditionally considered unscored or credit-less. Specifically, some lenders built their score-generating algorithms around behavioral data gleaned from social media and social networking information, including the quantity and quality of social media presence, the identity and features of the applicant’s contacts, the applicant’s online social ties and interactions, the applicant’s contacts’ financial standing, the applicant’s personality attributes as extracted from her online footprints, and more.This Article studies the potential consequences of social credit systems predicated on a simple transaction: authorized use of highly personal information in return for better interest rates. Following a detailed description of emerging social credit systems, the Article analyzes the inclination of rational and irrational customers to be socially active online and/or disclose all their online social-related information for financial ranking purposes. This examination includes, inter alia, consumers’ preferences as well as mistakes, gamesmanship, and consumers’ self-doxing or lack thereof. The Article then moves to discuss policy challenges triggered by social-based financial ranking that may become the new creditworthiness baseline criteria. It focuses on (i) direct privacy harms to loan seekers, and derivative privacy harm to loan seekers’ online contacts or followers, (ii) online social segregation potentially mirrored by offline social polarization, and (iii) due process violations derived from algorithmic decision-making and unsupervised machine learning. The Article concludes by making a significant normative contribution, introducing a limited “right to be un-networked,” to accommodate the welcomed aspects of social credit systems while mitigating many of their undesired consequences.","PeriodicalId":196559,"journal":{"name":"LSN: Consumer Credit Issues (Sub-Topic)","volume":"31 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-02-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116919119","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article reviews the law and economics of consumer debt collection and its regulation, a topic that has taken on added urgency in light of the announcement by the Consumer Financial Protection Bureau that it is considering new regulations on the subject. Although stricter regulation of permissible debt collection practices can benefit those consumers who are in default and increase demand for credit by consumers, overly-restrictive regulation will result in higher interest rates and less access to credit for consumers, especially higher-risk consumers. Regulation of particular practices may also have the unintended consequence of providing incentives for creditors to more rapidly escalate their efforts to more aggressive collection practices, including litigation. Finally, the CFPB should take care to avoid imposing disproportionate regulatory burdens on small firms that would reduce competition and promote further consolidation of the industry. Therefore, before enacting any new regulations, the CFPB should be careful to ensure that the marginal benefits to consumers and the economy of new regulations exceed any costs arising from unintended consequences.
{"title":"The Law and Economics of Consumer Debt Collection and its Regulation","authors":"Todd J. Zywicki","doi":"10.2139/ssrn.3191392","DOIUrl":"https://doi.org/10.2139/ssrn.3191392","url":null,"abstract":"This article reviews the law and economics of consumer debt collection and its regulation, a topic that has taken on added urgency in light of the announcement by the Consumer Financial Protection Bureau that it is considering new regulations on the subject. Although stricter regulation of permissible debt collection practices can benefit those consumers who are in default and increase demand for credit by consumers, overly-restrictive regulation will result in higher interest rates and less access to credit for consumers, especially higher-risk consumers. Regulation of particular practices may also have the unintended consequence of providing incentives for creditors to more rapidly escalate their efforts to more aggressive collection practices, including litigation. Finally, the CFPB should take care to avoid imposing disproportionate regulatory burdens on small firms that would reduce competition and promote further consolidation of the industry. Therefore, before enacting any new regulations, the CFPB should be careful to ensure that the marginal benefits to consumers and the economy of new regulations exceed any costs arising from unintended consequences.","PeriodicalId":196559,"journal":{"name":"LSN: Consumer Credit Issues (Sub-Topic)","volume":"11 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-09-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123386080","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Bankruptcy reform in 2005 eliminated debtors’ ability to discharge private student loan debt in bankruptcy. This law aimed to reduce costly defaults by diminishing the perceived incentive of some private student loan borrowers to declare bankruptcy even if they had sufficient income to service their debt. Using a unique, nationally representative sample of anonymized credit bureau files, we examine the bankruptcy filing and delinquency rates of private student loan borrowers in response to the 2005 bankruptcy reform. We do not find evidence that the nondischargeability provision reduced the likelihood of filing bankruptcy among private student loan borrowers as compared with other debtors whose incentives were not directly affected by the policy.
{"title":"Do Student Loan Borrowers Opportunistically Default? Evidence from Bankruptcy Reform","authors":"R. Darolia, Dubravka Ritter","doi":"10.2139/ssrn.2592600","DOIUrl":"https://doi.org/10.2139/ssrn.2592600","url":null,"abstract":"Bankruptcy reform in 2005 eliminated debtors’ ability to discharge private student loan debt in bankruptcy. This law aimed to reduce costly defaults by diminishing the perceived incentive of some private student loan borrowers to declare bankruptcy even if they had sufficient income to service their debt. Using a unique, nationally representative sample of anonymized credit bureau files, we examine the bankruptcy filing and delinquency rates of private student loan borrowers in response to the 2005 bankruptcy reform. We do not find evidence that the nondischargeability provision reduced the likelihood of filing bankruptcy among private student loan borrowers as compared with other debtors whose incentives were not directly affected by the policy.","PeriodicalId":196559,"journal":{"name":"LSN: Consumer Credit Issues (Sub-Topic)","volume":"202 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123053712","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The market for payday lenders, businesses that provide vehicle title loans, and other small-value financing players is rife with controversy. Some see them as predatory lenders that weave a web of never-ending debt designed to capture the weakest and most economically vulnerable of society. However, advocates of these financial institutions argue that for many Americans who are otherwise shut out of the conventional lending market, these players provide the only viable source of credit in times of economic hardship. Whatever the view, these businesses, their borrowers, and the credit markets that they together comprise are often referred to in legal and economic research and literature as the "fringe economy." And interestingly, aside from a patchwork of state law rules, this area of the financial services sector is fairly unregulated.However, on Thursday, March 26, 2015 the U.S. Consumer Financial Protection Bureau released a report outlining the agency’s long heralded plans to impose nation-wide regulations on the fringe economy. The first part of this article gives an overview of the fringe economy, the types of services and products it provides, and gives a snapshot of existing, state-based regulations. The second part goes into the nuts and bolts of the proposed rules.
{"title":"Payday Lenders, Vehicle Title Loans, and Small-Value Financing: The CFPB's Proposal to Regulate the Fringe Economy","authors":"Christopher K. Odinet","doi":"10.2139/SSRN.2616357","DOIUrl":"https://doi.org/10.2139/SSRN.2616357","url":null,"abstract":"The market for payday lenders, businesses that provide vehicle title loans, and other small-value financing players is rife with controversy. Some see them as predatory lenders that weave a web of never-ending debt designed to capture the weakest and most economically vulnerable of society. However, advocates of these financial institutions argue that for many Americans who are otherwise shut out of the conventional lending market, these players provide the only viable source of credit in times of economic hardship. Whatever the view, these businesses, their borrowers, and the credit markets that they together comprise are often referred to in legal and economic research and literature as the \"fringe economy.\" And interestingly, aside from a patchwork of state law rules, this area of the financial services sector is fairly unregulated.However, on Thursday, March 26, 2015 the U.S. Consumer Financial Protection Bureau released a report outlining the agency’s long heralded plans to impose nation-wide regulations on the fringe economy. The first part of this article gives an overview of the fringe economy, the types of services and products it provides, and gives a snapshot of existing, state-based regulations. The second part goes into the nuts and bolts of the proposed rules.","PeriodicalId":196559,"journal":{"name":"LSN: Consumer Credit Issues (Sub-Topic)","volume":"25 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-06-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114615279","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Arpita Gupta, E. Morrison, C. Fedorenko, S. Ramsey
This paper explores the role of capital structure in determining how households respond to unanticipated shocks. We draw on a novel dataset linking individual cancer records to high-quality administrative data on personal mortgages, bankruptcies, foreclosures, and credit reports. We find that cancer diagnoses induce a substantial increase in various measures of financial stress regardless of whether the patient carries health insurance. Foreclosure rates, for example, increase 65 percent during the five years following diagnosis. The effect, however, is concentrated among patients with low levels of housing equity. Highly leveraged households default, undergo foreclosure, or file for bankruptcy; less-levered households cope with health shocks by drawing on home equity and other sources of liquidity. These results point to the critical role of capital structure in determining how households respond to severe shocks. They also suggest that household leverage may merit as much policy attention as health insurance.
{"title":"Leverage, Default, and Mortality: Evidence from Cancer Diagnoses","authors":"Arpita Gupta, E. Morrison, C. Fedorenko, S. Ramsey","doi":"10.2139/ssrn.2583975","DOIUrl":"https://doi.org/10.2139/ssrn.2583975","url":null,"abstract":"This paper explores the role of capital structure in determining how households respond to unanticipated shocks. We draw on a novel dataset linking individual cancer records to high-quality administrative data on personal mortgages, bankruptcies, foreclosures, and credit reports. We find that cancer diagnoses induce a substantial increase in various measures of financial stress regardless of whether the patient carries health insurance. Foreclosure rates, for example, increase 65 percent during the five years following diagnosis. The effect, however, is concentrated among patients with low levels of housing equity. Highly leveraged households default, undergo foreclosure, or file for bankruptcy; less-levered households cope with health shocks by drawing on home equity and other sources of liquidity. These results point to the critical role of capital structure in determining how households respond to severe shocks. They also suggest that household leverage may merit as much policy attention as health insurance.","PeriodicalId":196559,"journal":{"name":"LSN: Consumer Credit Issues (Sub-Topic)","volume":"34 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-03-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115971587","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Households that fail to refinance their mortgage when interest rates decline can lose out on substantial savings. Based on a large random sample of outstanding U.S. mortgages in December of 2010, we estimate that approximately 20% of households for whom refinancing would be optimal and who appeared unconstrained to do so, had not taken advantage of the lower rates. We estimate the present-discounted cost to the median household who fails to refinance to be approximately $11,500, making this a particularly large consumer financial mistake. To shed light on possible mechanisms and corroborate our main findings, we also provide results from a mail campaign targeted at a sample of homeowners that could benefit from refinancing.
{"title":"Failure to Refinance","authors":"Benjamin J. Keys, Devin G. Pope, Jaren C. Pope","doi":"10.2139/SSRN.2693301","DOIUrl":"https://doi.org/10.2139/SSRN.2693301","url":null,"abstract":"Households that fail to refinance their mortgage when interest rates decline can lose out on substantial savings. Based on a large random sample of outstanding U.S. mortgages in December of 2010, we estimate that approximately 20% of households for whom refinancing would be optimal and who appeared unconstrained to do so, had not taken advantage of the lower rates. We estimate the present-discounted cost to the median household who fails to refinance to be approximately $11,500, making this a particularly large consumer financial mistake. To shed light on possible mechanisms and corroborate our main findings, we also provide results from a mail campaign targeted at a sample of homeowners that could benefit from refinancing.","PeriodicalId":196559,"journal":{"name":"LSN: Consumer Credit Issues (Sub-Topic)","volume":"27 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126927171","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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