Macroeconomic effects of the mortgage refinance and the home equity lines of credit

Abstract

I examine how the mortgage refinance and the home equity lines of credit (HELOC) impact the increase in pre-crisis mortgage debt and post-crisis mortgage defaults. Financially constrained homeowners can cash out funds through refinancing mortgages or extract home equity through HELOC. My quantitative exercise shows that prevalent usage of refinancing increases pre-crisis mortgage debt, which amplifies the post-crisis foreclosure rate. HELOC also contributes to an increase in mortgage defaults, though it negligibly impacts pre-crisis mortgage debt.