NEW YORK – 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. 

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