In a research paper for the Federal Reserve Bank of New York, a team of economists also found that erosion of home equity because of declining prices also deterred homeowners from refinancing.

The findings reinforce what lenders have assumed all along - that people whose credit and/or home values have declined may be locked into their mortgages even when better rates become available. But the researchers noted that previous research into prepayment likelihood relied on aggregate data on pools of mortgages rather than data on individual loans.

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