Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/299346 
Year of Publication: 
2024
Series/Report no.: 
Bank of Canada Staff Working Paper No. 2024-11
Publisher: 
Bank of Canada, Ottawa
Abstract: 
We study the unintended effects of the Home Affordable Refinance Program (HARP) on mortgage borrowers. Originally designed to help financially distressed borrowers refinance after the 2008-09 global financial crisis, HARP inadvertently amplified the market power of incumbent lenders by introducing a cost differential between incumbents and their competitors. To assess the welfare implications of this cost advantage, we develop and estimate a structural model of dynamic refinancing decisions with lenders' offers arising from a search and negotiation process. Our findings reveal that although the cost asymmetry was rectified by a 2013 policy, it still resulted in a welfare loss exceeding the impact of search frictions.
Subjects: 
Financial institutions
JEL: 
G21
G51
L51
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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