Does Temporary Mortgage Assistance for Unemployed Homeowners Reduce Longer Term Mortgage Default? An Analysis of the Hardest Hit Fund Program

Abstract

Economic crisis like the Great Recession and the COVID pandemic prompt government intervention to stabilize homeowners and housing markets. During the Great Recession, the primary intervention was permanent loan modifications, with mixed evidence of success. The COVID pandemic spurred a more targeted but temporary intervention--mortgage payment relief for unemployed homeowners. Little is known about the long term effectiveness of temporary mortgage assistance on homeowner outcomes. This paper leverages data on the U.S. Department of Treasury’s Hardest Hit Fund (HHF) program to analyze the longer term effects of temporary mortgage payment subsidies on mortgage default. Our primary empirical strategy exploits the fact that some states were not eligible to offer an HHF program and that certain Metropolitan Statistical Areas (MSAs) encompass jurisdictions in both HHF and non-HHF states. In an alternative specification, we model selection into HHF directly, exploiting lender variation in program participation as an instrument. Our results indicate that receipt of HHF leads to a 40 percent reduction in the probability of mortgage default and foreclosure through four years post assistance. We estimate heterogeneous effects for different at risk populations and discuss implications for policy.

Keywords: Foreclosure, Loan Modification, Unemployment

JEL Classification: G18, G21, G28, G40