Inequality During the COVID-19 Pandemic : The Case of Savings from Mortgage Refinancing

We study the distribution of savings from mortgage refinancing across income groups during the COVID-19 pandemic. Between February and June 2020, the difference in savings from refinancing between high- and low-income borrowers was 10 times higher than before. This was the result of two factors: individuals in the top quintile of the income distribution increased their refinancing activity more than comparable borrowers in the bottom quintile and, conditional on refinancing, they also captured the largest improvements in interest rates. Exploiting county-by-month variation in COVID-19 case rates we tie these results to the pandemic and explain up to 74% of increases in refinancing inequality through local economic conditions. We estimate a difference of $5 billion in savings from refinancing between the top quintile of the income distribution and the rest of the market. Our results have implications for the transmission of monetary policy and for the evolution of wealth inequality