Does Junior Inherit? Refinancing and the Blocking Power of Second Mortgages

A previous version of this working paper was originally published in December 2012.

The authors show that this practice significantly impedes the refinancing of first mortgages by imparting blocking power to junior mortgagees. They identify the effect by building a database showing all mortgages of a large panel of homeowners, identifying those whose combined loan-to-value makes them candidates for refinancing their first mortgages, and contrasting the incidence of refinancing between the states following this standard and the states following an alternate standard by which a mortgage inherits the seniority of the mortgage it replaces.