This paper examines the impact of a new policy implemented by the Federal Hous- ing Finance Agency (FHFA) on December 1st, 2020, called the Adverse Market Refi- nance Fee (AMRF), equal to 0.5% of the value of a refinancing loan. The AMRF was instituted by the FHFA as a mechanism to mitigate losses incurred from forbearance defaults and to support the Government Sponsored Enterprises (GSEs) — Fannie Mae and Freddie Mac — in managing the increased risk associated with lending during the COVID-19 pandemic. This paper measures the degree of bunching in response to a jump in interest rates, using individual loan-level data by Fannie Mae. Specifically, I identify the effect of interest rates on borrower behavior by exploiting the exogenous variation in the relationship between loan size and interest rates that results from the threshold used by the new fee policy. The estimates suggest average bunching weights ranging from 0.19 to 0.562. Moreover, this paper also provides estimates of the interest rate elasticity of mortgage refinancing demand ranging from 0.0002 to 0.001.
