The inefficiency of refinancing: Why prepayment penalties are good for risky borrowers

• 成果类型: Article
• 署名作者: Mayer, Chris; Piskorski, Tomasz; Tchistyi, Alexei
• 署名单位: Columbia University; University of California System; University of California Berkeley
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2012.10.003
• 发表日期: 2013
• 页码: 694-714
• 关键词: Inefficiency of refinancing; Prepayment penalties; Risky borrowers; mortgages

摘要

This paper provides a theoretical analysis of the efficiency of prepayment penalties in a dynamic competitive lending model with risky borrowers and costly default. When considering improvements in the borrower's creditworthiness as one of the reasons for refinancing mortgages, we show that refinancing penalties can be welfare improving and that they can be particularly beneficial to riskier borrowers in the form of lower mortgage rates, reduced defaults, and increased availability of credit. Thus, a high concentration of prepayment penalties among the riskiest borrowers can be an outcome of efficient equilibrium in a mortgage market. We also provide empirical evidence that is consistent with the key predictions of our model. (C) 2012 Elsevier B.V. All rights reserved.