Crowding Out Effects of Refinancing on New Purchase Mortgages

Crowding Out Effects of Refinancing on New Purchase Mortgages We present evidence that binding mortgage processing capacity constraints reduce mortgage originations to borrowers with low-to-modest credit scores. Mortgage processing capacity constraints typically bind when the demand for mortgage refinancing rises far above average levels, such as when mortgage interest rates drop to record low levels. As a result, high capacity utilization leads mortgage lenders to ration mortgage credit by focusing on mortgage applications that require less underwriting resources. This is hypothesized to have a particularly adverse impact on relatively higher credit-risk borrowers’ ability to obtain mortgages, particularly for purchasing borrowers with low-to-modest credit scores. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Crowding Out Effects of Refinancing on New Purchase Mortgages

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Publisher
Springer US
Copyright
Copyright © 2016 by Springer Science+Business Media New York (outside the USA)
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1007/s11151-016-9500-9
Publisher site
See Article on Publisher Site

Abstract

We present evidence that binding mortgage processing capacity constraints reduce mortgage originations to borrowers with low-to-modest credit scores. Mortgage processing capacity constraints typically bind when the demand for mortgage refinancing rises far above average levels, such as when mortgage interest rates drop to record low levels. As a result, high capacity utilization leads mortgage lenders to ration mortgage credit by focusing on mortgage applications that require less underwriting resources. This is hypothesized to have a particularly adverse impact on relatively higher credit-risk borrowers’ ability to obtain mortgages, particularly for purchasing borrowers with low-to-modest credit scores.

Journal

Review of Industrial OrganizationSpringer Journals

Published: Jan 18, 2016

References

  • Household finance
    Campbell, JY
  • Understanding the subprime mortgage crisis
    Demyanyk, YS; Hemert, O

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