The Effect of Mortgage Forbearance on Refinancing: Evidence from the CARES Act

This paper examines the effect of foreclosure prevention policies on refinancing. Through a counterfactual analysis, we show that a foreclosure moratorium decreases significantly the refinancing cost of households and relaxes their refinancing eligibility constraints. Our results imply that granting forbearance to households facing foreclosures has positive externalities on a broader range of households who intend to refinance. Mortgage forbearance thus amplifies the stimulative effect of monetary policies.