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

Abstract

Economic crises 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 for homeowner outcomes. This paper leverages data on the U.S. Department of the Treasury's Hardest Hit Fund (HHF) program to analyze the longer-term effects of temporary mortgage payment subsidies on mortgage default. Our first research design 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 a second research design, we model selection into the HHF program directly, exploiting lender variation in program participation as an instrument. Our results indicate that receipt of HHF assistance 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.

The Effects of Administrative Burden on Program Equity and Performance: Evidence from a Natural Experiment in a Foreclosure Prevention Program

“…Ohio's program was singled out as a program with substantial delays. Research indicates that, despite lower than intended take-up rates and delays, those who did receive HHF assistance were 40 percent less likely to experience foreclosure on their homes three years after rolling off assistance (Moulton et al 2022).…”

“…In our LPM specification, the reforms are associated with a 2.8 percentage point (19 percent) reduction in the probability of foreclosure. This is a substantive reduction in foreclosure: a prior study found that the receipt of HHF assistance was associated with a 40 percent reduction in the probability of mortgage default and foreclosure (Moulton et al 2022). Reduced administrative burdens thus increased the probability that individual who started the application and who may have otherwise experienced foreclosure ultimately received HHF assistance, thereby reducing the probability of foreclosure for the entire applicant pool.…”