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How do mortgage refinances affect debt, default, and spending? Evidence from HARP
We use quasi-random access to the Home Affordable Refinance Program (HARP) to identify the causal effect of refinancing a mortgage on borrower balance sheet outcomes. We find that on average, refinancing into a lower-rate mortgage reduced borrowers' default rates on mortgages and nonmortgage debts by about 40 percent and 25 percent, respectively. Refinancing also caused borrowers to expand their use of debt instruments, such as auto loans, home equity lines of credit (HELOCs), and other consumer debts that are proxies for spending. All told, refinancing led to a net increase in debt equal to about 20 percent of the savings on mortgage payments. This number combines increases (new debts) of about 60 percent of the mortgage savings and decreases (paydowns) of about 40 percent of those savings. Borrowers with low FICO scores or low levels of unused revolving credit grow their auto and HELOC debt more strongly after a refinance but also reduce their bank card balances by more. Finally, we show that take-up of the refinancing opportunity was strongest among borrowers that were in a relatively better financial position to begin with.
AUTHORS: Abel, Joshua; Fuster, Andreas
First Impressions Can Be Misleading: Revisions to House Price Changes
An assiduous follower of the national house price charts that the New York Fed maintains on its web page may have noticed that we appear to be rewriting history as we update the charts every month. For example, last month we reported that the median twelve-month house price change across all counties for December 2012 was 3.68 percent. However, this month, we indicate that this same median change for December 2012 was instead 3.45 percent. Why the change? Was the earlier reported number a mistake that we simply corrected this month? If not, what explains the revision to the initial report?
AUTHORS: Tracy, Joseph; Peach, Richard; Abel, Joshua
Consumer Confidence: A Useful Indicator of . . . the Labor Market?
Consumer confidence is closely monitored by policymakers and commentators because of the presumed insight it can offer into the outlook for consumer spending and thus the economy in general. Yet there?s another useful dimension to consumer confidence that?s often overlooked: its ability to signal incipient developments in the job market. In this post, we look at trends in a particular measure of consumer confidence?the Present Situation Index component of the Conference Board?s Consumer Confidence Index?over the past thirty-five years and show that they?re closely associated with movements in the unemployment rate and in payroll employment.
AUTHORS: Bram, Jason; Rich, Robert W.; Abel, Joshua