Helping Prevent Foreclosures

August 17, 2014
New York Times 
mortgage lending news
Emergency extension of unemployment benefits during the recession helped prevent mortgage defaults even more so than government programs that focused only on reducing monthly payments, according to researchers from the Federal Reserve Board of Governors and Northwestern University's Kellogg School of Management.

Their report calculates that the $250 billion in federally funded jobless benefits paid out between July 2008 and December 2012 helped to avert 1.4 million foreclosures. As a result, $70 billion in social costs -- including the cost of foreclosure transactions and property depreciation -- was saved. The states that increased their benefit levels the most during recession presented larger declines in mortgage delinquencies. A $3,600 difference in maximum regular benefits reduced the average mortgage delinquencies associated with layoffs by 15 percent. The mitigating effect was concentrated among low- and middle-income households, since they are more sensitive to the size of unemployment benefits.

The findings strengthen the case for foreclosure-prevention initiatives that increase a borrower’s ability to pay. In contrast, the Obama administration’s Home Affordable Modification Program (HAMP) only lowered monthly payments, which turned out to be less of a solution for homeowners with significant income disruption. As of 2013, HAMP had prevented about 800,000 foreclosures -- far less than its initial goal.

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