Collateral Damage: Refinancing Constraints and Regional Recessions

Publication Date: August 1997

Publisher:

Author(s): Andrew Caplin; Charles Freeman; Joseph Tracy

Research Area: Social conditions

Keywords: Housing finance; Affordable Housing

Type: Article

Abstract:

In the current structure of the U.S. residential mortgage market, a decrease in property values may make it very difficult for homeowners to refinance their mortgages to take advantage of declining interest rates. In this paper, we show that this form of collateral constraint has greatly reduced refinancing in states with depressed property markets. We outline the interaction between regional recessions and refinancing constraints.