Mortgage Refinancing, Consumer Spending, and Competition: Evidence from the Home Affordable Refinance Program (2024)

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Volume 90 Issue 2 March 2023
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Sumit Agarwal

National University of Singapore

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Gene Amromin

Federal Reserve Bank of Chicago

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Souphala Chomsisengphet

OCC

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Tim Landvoigt

Wharton

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Tomasz Piskorski

Columbia Business School and NBER

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Amit Seru

aseru@stanford.edu

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Vincent Yao

Georgia State University

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The Review of Economic Studies, Volume 90, Issue 2, March 2023, Pages 499–537, https://doi.org/10.1093/restud/rdac039

Published:

29 June 2022

Article history

Received:

01 March 2018

Editorial decision:

01 November 2020

Accepted:

01 June 2022

Published:

29 June 2022

Corrected and typeset:

08 September 2022

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    Sumit Agarwal, Gene Amromin, Souphala Chomsisengphet, Tim Landvoigt, Tomasz Piskorski, Amit Seru, Vincent Yao, Mortgage Refinancing, Consumer Spending, and Competition: Evidence from the Home Affordable Refinance Program, The Review of Economic Studies, Volume 90, Issue 2, March 2023, Pages 499–537, https://doi.org/10.1093/restud/rdac039

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Abstract

We examine the ability of the government to impact mortgage refinancing activity and spur consumption by focusing on the Home Affordable Refinance Program (HARP) that relaxed housing equity constraints by extending government credit guarantee on insufficiently collateralized refinanced mortgages. Difference-in-difference tests based on program eligibility criteria reveal a significant increase in refinancing activity by HARP. More than three million eligible borrowers with primarily fixed-rate mortgages refinanced under HARP, receiving an average reduction of 1.45|$\%$| in interest rate ($3,000 in annual savings). Durable spending by borrowers increased significantly after refinancing. Regions more exposed to the program saw a relative increase in non-durable and durable consumer spending, a decline in foreclosure rates, and faster recovery in house prices. Competitive frictions in the refinancing market hampered the program’s impact: the take-up rate and annual savings among those who refinanced were reduced by 10–20|$\%$|⁠, with amplified effects for the most indebted borrowers.

© The Author(s) 2022. Published by Oxford University Press on behalf of The Review of Economic Studies Limited.

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As an expert in the field, it's crucial to highlight the significance of the article titled "Mortgage Refinancing, Consumer Spending, and Competition: Evidence from the Home Affordable Refinance Program," published in The Review of Economic Studies, Volume 90, Issue 2, March 2023. The authors, including Sumit Agarwal from the National University of Singapore, Gene Amromin from the Federal Reserve Bank of Chicago, Souphala Chomsisengphet from OCC, Tim Landvoigt from Wharton, Tomasz Piskorski from Columbia Business School and NBER, Amit Seru from Stanford GSB, Hoover Institution, and NBER, and Vincent Yao from Georgia State University, have conducted a comprehensive study that provides valuable insights into the impact of the Home Affordable Refinance Program (HARP) on mortgage refinancing activity and consumer spending.

The depth of knowledge and expertise of the authors is evident in the rigorous research methodology employed, including difference-in-difference tests based on program eligibility criteria. This approach allows for a nuanced understanding of the causal relationship between HARP and various economic indicators. The article, published on June 29, 2022, in The Review of Economic Studies, Volume 90, Issue 2, is a result of meticulous work conducted over several years, with the authors receiving the article on March 1, 2018, and the editorial decision made on November 1, 2020.

The study focuses on the government's ability to influence mortgage refinancing activity and stimulate consumption through HARP. By relaxing housing equity constraints and extending government credit guarantees on insufficiently collateralized refinanced mortgages, the program aimed to alleviate financial burdens on homeowners. The evidence presented in the article showcases a substantial increase in refinancing activity among eligible borrowers, with over three million individuals primarily holding fixed-rate mortgages benefiting from an average reduction of 1.45% in interest rates, leading to $3,000 in annual savings.

Moreover, the authors explore the broader economic implications of the program. Durable spending by borrowers exhibited a significant increase post-refinancing. Regions more exposed to the HARP program experienced relative increases in both non-durable and durable consumer spending, a decline in foreclosure rates, and a faster recovery in house prices. However, competitive frictions in the refinancing market posed challenges, as evidenced by a reduction of 10–20% in the take-up rate and annual savings among those who refinanced, particularly affecting the most indebted borrowers.

In conclusion, this article contributes substantially to our understanding of the macroeconomic effects of government-initiated programs in the housing market. The empirical evidence provided by the authors supports the idea that well-designed policies, such as HARP, can have a positive impact on both individual households and regional economies. The study's findings are particularly relevant for policymakers, economists, and financial experts seeking insights into the dynamics of mortgage markets and their broader economic consequences.

Mortgage Refinancing, Consumer Spending, and Competition: Evidence from the Home Affordable Refinance Program (2024)
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