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Collateral Damage: Refinancing Constraints and Regional Recessions

Andrew Caplin, Charles Freeman and Joseph Tracy
Journal of Money, Credit and Banking
Vol. 29, No. 4, Part 1 (Nov., 1997), pp. 496-516
DOI: 10.2307/2953710
Stable URL: http://www.jstor.org/stable/2953710
Page Count: 21
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Collateral Damage: Refinancing Constraints and Regional Recessions
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Abstract

In the current structure of the U.S. residential mortgage market, a decrease in property values may make it very difficult for homeowners to refinance their mortgages to take advantage of declining interest rates. In this paper, we show that this form of collateral constraint has greatly reduced refinancing in states with depressed property markets. We outline the interaction between regional recessions and refinancing constraints.

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