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| Working Papers – 2023 |
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Regional Variation in Transaction Costs, Mortgage Rate Heterogeneity, and Mortgage Refinancing Behavior FDIC Center for Financial Research Working Paper No. 2023-03 This Version: October 2023 Abstract Recent work has demonstrated that the U.S. mortgage market is characterized by significant heterogeneity in the interest rates that are offered to borrowers as well as mortgage refinancing behavior. In this study we contribute to the mortgage heterogeneity literature by providing the first systematic analysis of regional differences in transaction costs in the mortgage market. Using the Uniform Closing Database—a unique repository of loan-level closing cost information—we demonstrate that there is a tremendous amount of regional variation in transaction costs in the mortgage market, most of which is driven by differences in local mortgage stamp taxes and recording fees. In the second part of our paper, we take up the question of how failing to account for such heterogeneity might affect studies of borrower behavior in the mortgage market. We do so through the lens of the failure-to-refinance literature on optimal refinancing activity. Accounting for rate and closing costs heterogeneity significantly reduces estimates of suboptimal refinancing behavior, particularly among borrowers with high-risk credit profiles and those living in states with high closing costs. Because regional variation in closing costs is driven by the state and municipal policies, our results suggest that local governments play a role in the pass through of monetary policy via the mortgage market that has not been previously documented. Our findings also provide a potential mechanism above and beyond the home equity channel that could explain regional variation in refinancing activity and consumer spending during recoveries. Keywords: Mortgage Lending, Household Finance |
Poor Performance and CEO Turnover in Community Banks: The Role of Gender in Managerial Successions FDIC Center for Financial Research Working Paper No. 2023-02 This Version: September 2024 Abstract This paper examines the impact of poor financial performance on community bank CEO turnover and addresses the role of CEO gender in these successions and subsequent bank actions and outcomes. We document that poor performance has a causal impact on CEO turnover in U.S. community banks. Although poor financial performance is a key determinant of CEO turnovers, it is neither linked to the gender of the bank’s dismissed nor the incoming CEO. We find strong evidence of asymmetric post-turnover operational and balance sheet adjustments depending on the gender of the incoming CEO, especially for banks undergoing CEO turnover amidst periods of poor performance. These adjustments suggest differential attempts at reducing leverage and risk for banks transitioning to female leadership. However, we do not find conclusive evidence that transitions to female leadership would lead to post-turnover improvements in financial performance or risk profile. JEL Code: G20, G21, G30, G32, M12, M14. |
Supply Constraints and Failure to Refinance FDIC Center for Financial Research Working Paper No. 2023-01 This Version: May 2025 Abstract We show that supply-side capacity constraints in the mortgage market contribute to the well-documented “failure to refinance” among borrowers who would benefit financially from doing so. Supply constraints have little impact on most borrowers but substantially reduce the quarterly prepayment rate among “marginal” borrowers (those with lower loan balances, incomes, or credit scores), after accounting for the financial benefit of refinancing and a rich set of observable characteristics. Our estimates imply that supply constraints led to 12 percent of marginal borrowers failing to refinance during the 2020-2021 boom. We provide suggestive evidence that lenders ration credit to these borrowers, particularly in the early stages of the application process. JEL Code: G21, G51, E5. |
The Center for Financial Research (CFR) Working Paper Series allows CFR staff and their coauthors to circulate preliminary research findings to stimulate discussion and critical comment. Views and opinions expressed in CFR Working Papers reflect those of the authors and do not necessarily reflect those of the FDIC or the United States. Comments and suggestions are welcome and should be directed to the authors. References should cite this research as a “FDIC CFR Working Paper” and should note that findings and conclusions in working papers may be preliminary and subject to revision.