NEW YORK, Feb. 21, 2019 /PRNewswire/ -- The Home Affordable Refinance Program (HARP), which expired on December 31, 2018, was designed to help U.S. homeowners find more affordable home loans. But, according to research from three professors at Columbia Business School, more than half of all eligible borrowers under the program did not decide to refinance their mortgages.
In the paper, "What's the Catch? Suspicion of Bank Motives and Sluggish Refinancing," Professors Eric Johnson, Stephan Meier, and Olivier Toubia investigate why U.S. homeowners are slow to consider refinancing options even when the terms could save them significant money, and what factors influence their decision not to refinance.
The researchers reveal that 51 percent of borrowers who were sent preapproval applications did not decide to refinance their mortgages, a stunningly high proportion given the fact that there were no monetary costs and that the offers were attractive. Those who do not apply leave, on average, $8,719 on the table. While the researchers do not claim, based on this study, that suspicion of banking institutions is the main or only reason that many customers do not accept refinancing offers, they find that the correlation between suspicion and refinancing is robust and significant.
The results highlight the important role of trust in financial decisions. Without it, the researchers warn that the failure to refinance will not only continue to be costly for the banking sector, but for society as well since lower payments would reduce defaults.
For more information, please read the two-page research brief (PDF) compiled by Columbia Business School's Jerome A. Chazen Institute for Global Business.
About Columbia Business School
Columbia Business School is the only world-class, Ivy League business school that delivers a learning experience where academic excellence meets with real-time exposure to the pulse of global business. Led by Dean Glenn Hubbard, the School's transformative curriculum bridges academic theory with unparalleled exposure to real-world business practice, equipping students with an entrepreneurial mindset that allows them to recognize, capture, and create opportunity in any business environment. The thought leadership of the School's faculty and staff, combined with the accomplishments of its distinguished alumni and position in the center of global business, means that the School's efforts have an immediate, measurable impact on the forces shaping business every day. To learn more about Columbia Business School's position at the very center of business, please visit www.gsb.columbia.edu.
SOURCE Columbia Business School