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

49 Pages Posted: 20 Apr 2020

See all articles by Stephanie Moulton

Stephanie Moulton

Ohio State University- John Glenn College of Public Affairs

Yung Chun

Washington University in St. Louis

Stephanie Pierce

Ohio State University - John Glenn College of Public Affairs

Holly Holtzen

affiliation not provided to SSRN

Roberto Quercia

University of North Carolina (UNC) at Chapel Hill - Department of City and Regional Planning

Sarah Riley

University of North Carolina (UNC) at Chapel Hill

Date Written: March 13, 2020

Abstract

The substantial costs of foreclosures to individuals and society motivated nearly $40 billion in government subsidies to homeowners during the Great Recession. Most of these subsidies were in the form of permanent loan modifications with mixed evidence of effectiveness. This paper estimates the loan outcomes of an alternative form of mortgage subsidy that provided unemployed homeowners with temporary mortgage payment assistance, through the U.S. Department of Treasury’s Hardest Hit Fund (HHF). 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. We match HHF-assisted homeowners to otherwise similar non-assisted homeowners who lived in the same MSA but were not eligible for HHF assistance because they lived in a non-HHF state. By 48 months after the start of assistance, receipt of HHF is associated with a 28 percentage point reduction in the probability of default, which is a 49 percent reduction in the average default rate of 57 percent. In support of the liquidity hypothesis, we find that the HHF effect is not driven by a reduction in mortgage balance, which only occurs for about 10 percent of HHF borrowers. Further, the effect is larger for borrowers who were underwater on their mortgages at the time of assistance.

Keywords: Foreclosure, Loan Modification, Unemployment

JEL Classification: G18, G21, G28, G40

Suggested Citation

Moulton, Stephanie and Chun, Yung and Pierce, Stephanie and Holtzen, Holly and Quercia, Roberto G. and Riley, Sarah, Does Temporary Mortgage Assistance for Unemployed Homeowners Reduce Longer Term Mortgage Default? An Analysis of the Hardest Hit Fund Program (March 13, 2020). Available at SSRN: https://ssrn.com/abstract=3559794 or http://dx.doi.org/10.2139/ssrn.3559794

Stephanie Moulton (Contact Author)

Ohio State University- John Glenn College of Public Affairs ( email )

110 Page Hall
1810 College Road
Columbus, OH 43210
United States

Yung Chun

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1208
Saint Louis, MO MO 63130-4899
United States

Stephanie Pierce

Ohio State University - John Glenn College of Public Affairs ( email )

110 Page Hall
1810 College Road
Columbus, OH 43210
United States

Holly Holtzen

affiliation not provided to SSRN

Roberto G. Quercia

University of North Carolina (UNC) at Chapel Hill - Department of City and Regional Planning ( email )

New East Building
Chapel Hill, NC 27599-3140
United States
919-962-4766 (Phone)
Not available (Fax)

Sarah Riley

University of North Carolina (UNC) at Chapel Hill ( email )

1700 Martin Luther King Blvd.
Suite 129, Campus Box 3452
Chapel Hill, NC 27599-3452
United States

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