No Job, No Money, No Refi: Frictions to Refinancing in a Recession

Anthony A. Defusco*, John Alexander Nelson Mondragon

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

18 Scopus citations


We study how employment documentation requirements and out-of-pocket closing costs constrain mortgage refinancing. These frictions, which bind most severely during recessions, may significantly inhibit monetary policy pass-through. To study their effects on refinancing, we exploit a Federal Housing Administration policy change that excluded unemployed borrowers from refinancing and increased others' out-of-pocket costs substantially. These changes dramatically reduced refinancing rates, particularly among the likely unemployed and those facing new out-of-pocket costs. Our results imply that unemployed and liquidity-constrained borrowers have a high latent demand for refinancing. Cyclical variation in these factors may therefore affect both the aggregate and distributional consequences of monetary policy.

Original languageEnglish (US)
Pages (from-to)2327-2376
Number of pages50
JournalJournal of Finance
Issue number5
StatePublished - Oct 1 2020

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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