Fannie Mae-No Politics (FNMA)

[10bambam]

Expanded jobless benefits prevented more than 1 million foreclosures
August 4, 2014, 12:21 PM ET
Share:
More
Email Print

Rather than shoving jobless homeowners through underperforming federal programs that aim to reduce mortgage payments, new research suggests a simpler solution to support troubled families: Give them more money.

By helping families make their debt payments, expanding unemployment-insurance benefits cut the likelihood of mortgage delinquency, and prevented about 1.4 million foreclosures between 2008 and 2012, a team of researchers at the Federal Reserve and Northwestern University wrote in a report titled “Positive Externalities of Social Insurance: Unemployment Insurance and Consumer Credit.”

“This finding implies that unemployment insurance played an important role in preventing mortgage default during the Great Recession, despite neither being targeted at mortgage borrowers nor being promoted as a housing policy,” according to the working paper from the National Bureau of Economic Research, a Cambridge, Mass.-based organization.

Those 1.4 million avoided foreclosures (the paper’s Table VII shows the annual number of prevented foreclosures) represented a large chunk of distressed properties during that time period. About 5 million foreclosures were completed between 2008 and 2012, according to data from CoreLogic, an Irvine, Calif.-based analysis firm.

There were other benefits from jobless benefits, too, researchers found. Banks who saw a lower default risk expanded credit access. Mortgage investors lost less than they otherwise would have. Local governments took a smaller hit.

Also, more owners hanging onto their properties meant that homes stood a better chance of not falling into disrepair, which in turn would have sunk property values in their neighborhoods.

“Policies improving borrowers’ ability to pay can be effective in reducing delinquency risk, even among those with incentive to strategically default,” researchers wrote. “[Unemployment-insurance] extensions during the Great Recession created a substantial welfare gain, especially in light of evidence that the extensions created minimal distortions to job search.”

And here’s one key finding for housing-policy wonks: Fewer troubled properties cut the government’s costs for expanding jobless benefits by narrowing the number of bad loans that would have been covered by federally controlled mortgage-finance giants Fannie Mae FNMA and Freddie Mac FMCC . Savings related to Fannie and Freddie decreased net costs for the federal government’s jobless-benefits expansion by about one-fifth, researchers estimated.

“These saving are particularly notable because the fiscal cost of extending [unemployment insurance] was a key consideration in the public policy debate,” the authors wrote.

–Ruth Mantell

http://blogs.marketwatch.com/capitolreport/2014/08/04/expanded-jobless-benefits-prevented-more-than-1-million-foreclosures/