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Refinancing Inequality During the COVID-19 Pandemic

Published online by Cambridge University Press:  13 December 2023

Sumit Agarwal ,
Souphala Chomsisengphet ,
Hua Kiefer ,
Leonard C. Kiefer  and
Paolina C. Medina Open the ORCID record for Paolina C. Medina [Opens in a new window]
Sumit Agarwal
Affiliation:
National University of Singapore Business School ushakri@yahoo.com
Souphala Chomsisengphet
Affiliation:
Office of the Comptroller of the Currency souphala.chomsisengphet@occ.treas.gov
Hua Kiefer
Affiliation:
Federal Deposit Insurance Corporation hkiefer@fdic.gov
Leonard C. Kiefer
Affiliation:
Freddie Mac leonard_kiefer@freddiemac.com
Paolina C. Medina*
Affiliation:
University of Houston Bauer College of Business
*
pcmedina@uh.edu (corresponding author)
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Abstract

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During the first half of 2020, the difference in savings from mortgage refinancing between high- and low-income borrowers was 10 times higher than before. This was the result of two factors: high-income borrowers increased their refinancing activity more than otherwise comparable low-income borrowers and, conditional on refinancing, they captured slightly larger improvements in interest rates. Refinancing inequality increases with the severity of the COVID-19 pandemic and is characterized by an underrepresentation of low-income borrowers in the pool of applications. We estimate a difference of $5 billion in savings between the top income quintile and the rest of the market.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 59 , Issue 5 , August 2024 , pp. 2133 - 2163
Copyright
© The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

This article was previously circulated with the title “Inequality During the COVID-19 Pandemic: The Case of Savings from Mortgage Refinancing.” We thank Mara Faccio (the editor) and her team for their valuable input. We also thank seminar participants at the 2023 AFA Annual Meeting, 2022 EFA Annual Meeting, 2022 FIRS Conference, 2022 AREUEA National Conference, 2022 ITAM Finance Conference, 2021 CEBRA Annual Meeting, 2021 SFS Cavalcade, 2021 NUS RE Seminar, 2020 American Enterprise Institute’s Housing Collaborative, and 2020 FHFA Fall Econ Summit, as well as at the OCC, Freddie Mac, FDIC, and Texas A&M University for valuable comments. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of Freddie Mac or its management, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the United States Department of the Treasury, the United States, or any federal agency and do not establish supervisory policy, requirements, or expectations.

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