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Heterogeneity in Mortgage Refinancing
Abstract
Many households who would benefit from and are eligible to refinance their mortgages
fail to do so. A recent literature has demonstrated a significant degree of heterogeneity
in the propensity to refinance across various dimensions, yet much heterogeneity is
left unexplained. In this paper, I use a clustering regression to characterize heterogeneity
in mortgage refinancing by estimating the distribution of propensities to refinance.
A key novelty to my approach is that I do so without relying on borrower characteristics,
allowing me to recover the full degree of heterogeneity, rather than simply the extent
to which the propensity to refinance varies with a given observable. I then explore
the role of both observed and unobserved heterogeneity in group placement by regressing
group estimates on a set of demographic characteristics. As a complement to my analysis,
I provide evidence from a novel dataset of detailed information on borrower perspectives
on mortgage refinancing to paint a more nuanced picture of how household characteristics
and behavioral mechanisms play into the decision to refinance. I find a significant
degree of heterogeneity in both the average and marginal propensity to refinance across
households. While observables such as education, race and income do significantly
correlate with group heterogeneity, it is clear that much heterogeneity may still
be attributed to the presence of unobservable characteristics.
Type
Honors thesisDepartment
EconomicsPermalink
https://hdl.handle.net/10161/25414Citation
Wu, Julia (2022). Heterogeneity in Mortgage Refinancing. Honors thesis, Duke University. Retrieved from https://hdl.handle.net/10161/25414.Collections
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