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Working Papers:
Job Market Paper
Households with a Federal Housing Administration (FHA) loan who refinance to a new FHA loan may overpay on their mortgage, because FHA-to-FHA refinance does not reassess the property value, resulting in borrowers continuing to pay an avoidable mortgage insurance premium (MIP). Using loan level data, I find that about 40% of FHA-to-FHA refinancers during 2009-2020 had enough property value appreciation for a conventional Government Sponsored Enterprise (GSE) loan that would save about $110 (10%) monthly and $2,957 upfront on mortgage costs. I explore both demand and supply-side channels to explain this choice. On the demand side, I show that information about the value of the house is important to refinancing decision. Households who received a new tax bill are more likely to refinance to a GSE loan. Additionally, minority and low-income FHA borrowers are less likely to refinance to a GSE loan. On the supply side, I document that lenders make higher profit from FHA mortgage upfront fee and securitization revenue. After an exogenous shock in securitization revenue, FHA borrowers refinance with affected lenders are less likely to refinance to a GSE loan.
Work in Progress:
Climate Risk and Credit Rationing in the FHA Market
I utilize an updated flood risk map to examine how lenders implement credit rationing in response to flood risk. In regions with elevated flood risk, conventional GSE loans demonstrate higher loan-to-value (LTV) ratios. In contrast, FHA loans do not adjust LTV based on flood risk at the intensive margin. Instead, FHA lenders adapt at the extensive margin by increasing rejection rates in areas with greater flood risk. This research underscores the complexities of risk assessment in the multidimensional mortgage contract space, carrying significant implications for public policy and financial stability.
Zero-cost Refinance and Time Inconsistency (with Mingzi Niu)
We examine the phenomenon of mortgage borrowers incorporating upfront origination costs into their total loan balances. Employing a behavioral model of a time-inconsistent agent, I offer explanations for why zero-cost refinancing can be a rational choice for naive time-inconsistent borrowers. This research enhances our understanding of household mortgage decisions, particularly among financially constrained households. Furthermore, the more prevalent use of zero-cost refinancing among nonbank lenders provides valuable insights into the growth of nonbank entities in the mortgage lending market.
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