Knowing the HAF of It: Evaluating the Benefit Added of Public Subsidies to Stabilize Homeowners

• In Event: Unstable Homeownership: Heirs' Property, Contracts for Deed, and Homeowner Assistance

Abstract

Despite unprecedented rates of unemployment in 2020, the majority of homeowners avoided foreclosure—due in part to prompt mortgage payment relief through forbearance.  Payment forbearance is potentially beneficial for homeowners experiencing a short-term crisis and who have the capacity to repay deferred payments once the crisis resolves or recapitalize the deferred payments into their mortgage.  Yet for some homeowners, economic crises may not quickly resolve and may carry lasting financial scars that deplete limited savings, reduce access to credit, and diminish home equity.  For these vulnerable homeowners, public subsidies may be warranted to stabilize housing and preserve housing wealth.

This study evaluates short-term and longer-term outcomes of homeowners who received different forms of mortgage assistance during the COVID-19 pandemic, including private lender forbearance as well as public subsidies provided through the U.S. Department of Treasury’s Homeowner Assistance Fund (HAF). We leverage rich administrative panel data on Ohio homeowners with an active mortgage as of December 2019 and follow them through the end of 2023. Our quarterly panel dataset combines individual level data on income and unemployment insurance, credit data, property records data, and application and assistance data from Ohio’s HAF program.  Of the 2.4 million Ohio homeowners with a mortgage in December 2019 in our data, about 6.6% (160,000) had their mortgage payment forborne and 1.5% (35,000) applied for HAF subsidies between 2020 and 2022, with 18,000 homeowners receiving HAF assistance. 

We first estimate a series of hazard models to predict the probability of receiving (1) mortgage payment forbearance, (2) HAF subsidies, or (3) both between March 2020 and December 2022. We are particularly interested in how the extent and duration of income shocks predict the type of assistance received. While we expect income shocks to predict the receipt of any type of mortgage assistance, we expect homeowners with longer durations of unemployment or who experience greater income volatility to be more likely to obtain HAF subsidies in addition to or instead of payment forbearance. When then estimate a series of panel models predicting the change in homeowner housing wealth from baseline (December 2019) to December 2023, as moderated by different types of mortgage assistance and allowing for heterogeneous effects by homeowner income, loan to value (LTV), and race at baseline. Finally, using the estimates from our models, we simulate counterfactual wealth trajectories for homeowners who experience income shocks, with and without the receipt of mortgage payment forbearance, and with and without the receipt of HAF subsidies.  The findings from our study inform the dual objectives of stabilizing mortgage payments while preserving housing wealth, and how the structure of mortgage assistance programs may exacerbate or ameliorate disparities in housing wealth.

Authors

• Brandon Frye, The Ohio State University
  Presenting Author

• Stephanie Moulton, The Ohio State University
  Non-Presenting Co-Author