Abstract:

 There are large cross-sectional differences in how often US borrowers refi
nance mortgages. In this paper, we develop a tractable equilibrium mortgage
 pricing model with heterogeneous borrowers and use it to show that equilibrium
 forces imply important cross-subsidies from borrowers who rarely refinance to
 those who refinance often. Mortgage reforms can potentially reduce these re
gressive cross-subsidies, but the equilibrium effects of these reforms can also
 have important distributional consequences. For example, many policies that
 lead to more frequent refinancing also increase equilibrium mortgage rates and
 thus reduce residential mortgage credit access for a large number of borrowers.