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The Federal Government Steps Up in Times of Disruption

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Summer/Fall 2020   


The Federal Government Steps Up in Times of Disruption


      • The onset of the COVID-19 pandemic in spring 2020 and the subsequent economic disruption from measures taken to curtail the spread of the virus have had significant health and economic impacts, including implications for housing.
      • Policymakers and practitioners have drawn on lessons from past episodes of economic disruption, including the Great Recession and natural disasters, to respond to current housing-related challenges.
      • The economy and housing market entered the pandemic in strong positions, and federal interventions to supplement income for those unemployed and underemployed by the pandemic, prevent evictions and foreclosures, fund various forms of housing assistance, and provide liquidity to financial markets have largely kept people housed and kept the housing finance system functioning well.

During periods of acute financial and economic disruption, the federal government has traditionally played a vital role in supporting housing markets, particularly through the work of the Federal Housing Administration (FHA) and Ginnie Mae, along with the Federal Reserve and the government-sponsored enterprises (GSEs) the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”). The onset of the novel coronavirus pandemic in early 2020 and state and local government efforts to address the subsequent public health emergency have created significant economic uncertainty. This article explores the effects of current economic conditions on housing; lessons learned from the federal response to the Great Recession that can be applied to the current situation; and the federal government’s immediate and longer-term actions to help renters, homeowners, landlords, mortgage servicers, and end investors keep people housed and the mortgage finance system functioning smoothly.

Angled front view of two-story residential buildings with sidewalk and street lights.
Public housing residents who have had a decrease in income can arrange for an income recertification as soon as possible to potentially prompt rent reduction or a hardship exemption. U.S. Department of Housing and Urban Development

A Distinct Disruption

The actions many state and local governments took to control the spread of the novel coronavirus — issuing stay-at-home orders, closing nonessential businesses, and restricting public gatherings — led to a precipitous rise in unemployment. The seasonally adjusted official unemployment rate rose from 4.7 percent in March 2020 to 14.7 percent the following month; by May, the rate was 13.3 percent compared with 3.6 percent one year prior. The total unemployed, as well as all persons marginally attached to the labor force and those employed part time for economic reasons as a percent of the civilian labor force plus those marginally attached to the labor force was 21.2 percent in May 2020 compared with 7.2 percent one year prior; this figure had rebounded to 14.2 percent by August 2020.1 The surge in pandemic-related unemployment, coupled with ongoing marginal attachment to the labor force for some workers, leaves millions in danger of being unable to pay for basic needs such as housing. These missed payments are often the first domino to fall, triggering a cascade of financial stressors on other components of the system. For example, a missed rent payment puts pressure on a landlord, who might be making payments to a mortgage servicer; the mortgage servicer, in turn, then owes payments (or advances) to investors in mortgage-backed securities. Missed payments at any of these points may also pressure insurance funds and guarantors. Unemployment insurance can mitigate the financial blow of losing a job, allowing renters and borrowers to continue making payments and keeping the system stable, and unemployment claims escalated precipitously in the spring. On February 22, 2020, there had been 2.1 million individuals receiving unemployment insurance benefits.2 As of August 29, 2020, the United States had 29.8 million individuals receiving unemployment insurance benefits — 13.3 million with regular state unemployment and 14.5 million covered by the Coronavirus Aid, Relief, and Economic Security (CARES) Act Pandemic Unemployment Assistance.3

Many renters and homeowners are ill-prepared to weather any kind of financial shock, particularly a prolonged one. In a 2019 survey, 63 percent of respondents reported that they could cover a hypothetical $400 emergency expense using exclusively cash, savings, or a credit card they could pay off at the next statement; nearly 3 in 10 respondents, however, were either unable to pay their household’s monthly bills or reported that a modest financial setback would leave them unable to fully cover their bills. In addition, whereas 53 percent of respondents reported having set aside savings for emergency or “rainy day” use, only 18 percent reported having enough money saved to cover three months of household expenses. HUD-assisted renters are especially unlikely to have sufficient savings; in 2017, median annual household incomes were $10,800 for tenants in public housing, $12,500 for voucher recipients, and $11,160 for tenants in privately owned multifamily units compared with $36,100 for all renters.4

Immediate Relief Actions

Given the magnitude and urgency of the nation’s economic need, President Trump signed the CARES Act into law in March 2020. The CARES Act supplemented unemployment benefits with an extra $600 per month through July 31, 2020, and authorized other forms of assistance to help individuals cover their housing bills, including an extension of state unemployment insurance, unemployment insurance for workers not typically eligible, Economic Impact Payments of up to $1,200 per adult earning less than $99,000 per year and $500 per child under 17 years old, and the Paycheck Protection Program to help small businesses continue to pay their employees.5 These efforts, targeted to different groups through different means, offered a temporary boost to income that has helped many households stave off more dire economic fallout from the pandemic. After the supplemental unemployment insurance payments authorized by the CARES Act expired, the Federal Emergency Management Agency began using its Disaster Relief Fund in conjunction with state allocations from the Coronavirus Relief Fund to assist unemployed workers.6

Photo shows glass-walled entrance and ground floor of a multistory residential building.
In July, HUD announced the “Eviction Protection and Stability Toolkit” to curate resources aimed at keeping families stably housed and mitigating economic hardships caused by the COVID-19 pandemic.

The CARES Act also included provisions aimed specifically at relief for housing expenses. Drawing on previous federal experience with housing relief in response to natural disasters, the act requires that mortgage servicers of federally backed loans — those made, insured, or guaranteed by FHA, the U.S. Department of Veterans Affairs (VA), or the U.S. Department of Agriculture (USDA), as well as those purchased or securitized by Fannie Mae or Freddie Mac — offer forbearance for up to six months, plus an additional six months if requested by borrowers with a financial hardship caused by the COVID-19 National Emergency that makes them unable to pay their mortgage.7 Servicers cannot charge additional interest, fees, or penalties beyond what would have been charged if the borrower had made all payments on time and in full. Borrowers may attest to their own hardship.8

As of September 15, 2020, 1,365,000 FHA- and VA-insured mortgage loans (11.3% of the total) and 1,361,000 loans backed by Fannie Mae and Freddie Mac (4.9% of the total) were in forbearance. Overall, 3,692,000 loans were in forbearance as of September 15, 2020.9 Many borrowers have requested forbearance but have continued to pay; 46 percent of borrowers in forbearance made April payments. As of May 19, 2020, however, only 21 percent had made May payments.10 By July, 26 percent of borrowers who had entered COVID-19 related forbearance were current on their mortgage payments.11 Black Knight’s report on September 8, 2020, estimated a combined monthly advance on principal, interest, taxes, and insurance of $6.3 billion on active forbearance plans.12 Don Layton, senior industry fellow at Harvard’s Joint Center for Housing Studies, notes that there is a kind of overlap in the forbearance and income assistance components of the CARES Act. In essence, the extra income authorized by the Act should be helping borrowers to pay their mortgages and avoid forbearance, which likely contributes to the latter’s lower-than-expected takeup rate.13

FHA also implemented the COVID-19 National Emergency Partial Claim, an option servicers can use after the COVID-19 forbearance period ends. This partial claim will help eligible homeowners who have been granted special COVID-19 National Emergency forbearance to reinstate their loans by authorizing servicers to advance funds on the homeowners’ behalf. The partial claim defers the repayment of those advances through an interest-free subordinate mortgage that borrowers do not have to repay until their first mortgage is paid in full.14 For borrowers who are affected by COVID-19 but are ineligible for the partial claim, FHA developed a streamlined loss mitigation waterfall that reduces barriers to keeping borrowers in their homes.15

As a group, renters earn lower incomes than homeowners and are more likely to be affected by pandemic-related unemployment. To help renters, the relief targeted to homeowners is also available to landlords renting out one- to four-unit properties that are financed by Freddie and Fannie, which accounts for approximately one-third of the nation’s rental units. The CARES Act also provides relief for holders of FHA multifamily mortgages.16 For borrowers holding FHA-insured multifamily mortgages or participating in other HUD multifamily housing programs who are experiencing financial hardships because of COVID-19, servicers must grant up to 90 days of forbearance when borrowers request assistance.17 In addition, the CARES Act requires owners or agents of these properties to cease evicting tenants for nonpayment of rent for 120 days, and landlords cannot charge late fees or penalties for late payments. Tenants remain responsible for paying rent for this period in full.18 FHA has extended its foreclosure and eviction moratorium for single-family homes through December 31, 2020, and FHA and the Federal Housing Finance Agency (FHFA) have extended their moratoria on foreclosures on federally backed single-family mortgages through the same period.19 The Federal Reserve Bank of Atlanta estimates that the CARES Act moratorium covers between 28.1 percent and 45.6 percent of rental units.20 With broader coverage effective September 4, 2020, the Centers for Disease Control and Prevention (CDC) and the U.S. Department of Health and Human Services issued an order under the Public Health Service Act that temporarily halts residential evictions to prevent the spread of COVID-19. Tenants, lessees, and residents covered by the order must declare under penalty of perjury that, despite their best efforts, they are unable to pay their rent in full because of a loss of employment or income or extraordinary out-of-pocket medical expenses.21 Renters receiving HUD-funded assistance who have lost income can arrange an income recertification as soon as possible to receive a possible rent reduction or hardship exemption.22

A three-story multifamily building with sidewalk and landscaping in the foreground.
The CARES Act provided forbearance to owners of FHA-insured multifamily properties. U.S. Department of Housing and Urban Development

In July 2020, HUD announced the Eviction Protection and Stability Toolkit, which provides documents and resources from HUD, FHFA, and the Consumer Financial Protection Bureau that encourage engagement between tenants holding housing choice vouchers and their landlords before the moratorium expires, assist with establishing repayment agreements, and help landlords receive mortgage relief with the aim of keeping families stably housed and mitigating the economic hardships that the COVID-19 pandemic has caused.23

Local governments can use Community Development Block Grant (CDBG) program funds to “prevent, prepare for, and respond to coronavirus.”24 The CARES Act made a total of $5 billion available, with $2 billion allocated under the regular CDBG formula and an additional allocation of $1 billion to states based on factors such as public health needs, the risk of coronavirus transmission, the number of coronavirus cases compared with the national average, and economic and housing market disruptions, among others. The remaining $2 billion, less $10 million designated for technical assistance, has been allocated to state and local governments according to similar factors.25

The CARES Act also provided an additional $4 billion in funding for Emergency Solutions Grants to local governments to “prevent, prepare for, and respond to coronavirus, among individuals and families who are homeless or receiving homeless assistance and to support additional homeless assistance and homelessness prevention activities to mitigate the impacts created by coronavirus,” with the flexibility to extend assistance to individuals earning up to 50 percent of the area median income.26 Localities can use these grants for activities such as operating emergency shelters, issuing vouchers for hotel or motel stays, providing essential services to people experiencing homelessness, and rehousing individuals experiencing homelessness.27

The U.S. Department of the Treasury and Federal Reserve have also acted to bolster liquidity in markets, including mortgage markets, by expanding lending programs to support businesses and banks’ business lending, increasing the purchase of corporate debt, and lending to boost the circulation of dollars, among various other efforts to support the economy.28 The CARES Act also allocated $150 billion to fund the Treasury’s Coronavirus Relief Fund (CRF). Local governments can use these funds for various purposes, including housing assistance.29 For example, Collin County, Texas, has designated $30 million in CRF funds to the Collin Cares Assistance Program, which provides households financially impacted by COVID-19 with 3 months of financial assistance, of up to $2,500 per month, for housing, utility, and nutrition costs.30 In March 2020, the Federal Reserve pledged to purchase at least $500 billion in Treasury securities and $200 billion in mortgage-backed securities.31 Ginnie Mae created a special COVID-19 Pass-Through Assistance Program as a last-resort resource to help issuers meet their pass-through principal and interest obligations to end investors through advances.32 As participants in the Ginnie Mae program, issuers are required to pass through principal and interest on time and in full to investors regardless of whether homeowners pay their monthly mortgage installments.

Through the summer of 2020, with the help of these interventions, no surge in evictions or foreclosures has occurred, and the mortgage market possessed sufficient liquidity to protect institutions and keep the housing finance system viable. In fact, as of August 2020, HUD reported that “housing market activity began to rebound as buyers took advantage of record-low mortgage rates and the economy reopened more broadly,” with purchases of new and existing single-family homes at their strongest pace since December 2006 and construction of new single-family homes increasing 7.4 percent over the previous year.33 Most of these interventions, however, are temporary, and although the economy shows signs of improvement — for example, unemployment rates have decreased — the pandemic persists, and a number of housing-related challenges remain or are likely to emerge in the future.

Emerging and Future Challenges

Many of the temporary measures initiated at the beginning of the pandemic have expired, although some have been extended. For example, FHA and FHFA have extended their moratoria on foreclosures and evictions that, along with the CDC order, are in effect through the end of 2020; in addition, federal agencies have been directed to use their powers and available funds to minimize evictions.34 The extension or expiration of temporary measures along with other variables, such as the pace of recovery and associated changes in employment rates, new or extended income supports, and the impacts of the novel coronavirus and efforts to contain it, will shape the scope and scale of future housing-related challenges at each stage of the housing provision and financing system.

Many renters have been helped through these income supports, eviction moratoria, and supports for their landlords. As these supports expire or are exhausted, however, many may have difficulty paying off deferred rent in addition to their current rent bills. As certain sectors of the economy recover, decreasing unemployment may lessen this burden. As eviction proceedings resume, renters risk being forced from their homes and assuming numerous associated costs, including increased health risks, difficulty securing new housing, and moving costs. If tenants are unable to pay rent for an extended period or if units remain vacant, landlords without sufficient reserves and who have no forbearance coverage of their own may be unable to pay their mortgages, taxes, insurance, and maintenance expenses. Under these conditions, some landlords may be forced to sell their properties.

A large room with high, angled ceilings, a fire place, and seating areas.
The safe, stable, and affordable housing supported by federal programs such as FHA’s multifamily housing programs helps individuals shelter at home, maintain social distancing, and quarantine when needed. Photo courtesy of Premier Senior Living

Similarly, homeowners may also have difficulty resuming mortgage payments and making up for payments deferred during forbearance. Borrowers with GSE, FHA, USDA, and VA-backed loans who resume monthly payments will be able to repay missed payments when the home is sold or refinanced or when the loan reaches maturity, but borrowers with mortgages that are not federally backed might not have that option.35 Because interest rates currently are low, which can offer borrowers some relief, FHFA and FHA have also tailored eligibility for purchases and no-cash out refinances, allowing some borrowers coming out of forbearance to apply for lower interest rates after only three months of resumed payments.36 In addition to potentially ongoing employment and income challenges, however, lender overlays are shrinking the credit box, and some borrowers may find refinancing difficult.

Because most of the federal initiatives described above prohibit requiring renters and borrowers to document their hardship (the CDC order requires a signed affidavit), it is possible that people have received assistance that they did not need. That many borrowers receiving forbearance have continued to make payments indicates that they may have requested forbearance out of an expectation or possibility of need but have been able to continue making payments for now. Layton believes, based upon observing how borrowers behaved after 2008 and in various disasters, that the vast majority of borrowers want to pay their mortgage obligations on time, and that very few are “games players” who are trying to take advantage of a situation. Overall, he believes, the populace is acting responsibly thus far.37 However, borrowers who have started forbearance but do not yet need it face a potential self-inflicted problem: they could exhaust their eligibility, leaving themselves with no recourse for forbearance if they experience a future financial hardship.

Mortgage lenders and mortgage servicers also may face financial consequences if borrowers cannot pay. Even if their borrowers are getting forbearance, servicers are still obligated to pay end investors, potentially creating a liquidity crunch for the servicers that could bankrupt them and ultimately hurt borrowers and tenants.38 The aftermath of the Great Recession saw an increase in nonbank servicers, which may be more susceptible to liquidity pressures because they tend to have fewer reserves, less borrowing ability (from the Federal Reserve), and higher borrowing costs than do banks.39 FHFA is alleviating some of this pressure by capping servicers’ responsibility to four months and giving GSEs expanded authority to purchase loans in forbearance.40 As of early June 2020, FHFA Director Mark Calabria reports that even if forbearance rates increased dramatically to 15 percent (which FHFA does not project), thereby increasing advance obligations to $1.2 billion, nonbank mortgage servicers of GSE loans would have sufficient capital.41 American Enterprise Institute resident fellow Ed Pinto notes that as of early August 2020, mortgage servicers had thus far been able to meet their obligations thanks to a combination of lower-than-expected forbearance takeup, cash flow from refinancing prepayments and revenue as borrowers took advantage of low interest rates, and reduced borrowing costs for the servicers themselves.42 If the situation worsens considerably as emergency measures expire and the economic effects of the pandemic continue, however, claims on mortgage insurance funds and guarantors may increase, eroding and perhaps surpassing revenue and reserves. John Weicher, Hudson Institute senior fellow and director of the Center for Housing and Financial Markets, suggests that if this scenario occurs, there needs to be “forgiveness all around” — that the FHA Mutual Mortgage Insurance (MMI) Fund, for example, should be allowed to use its reserves, and beyond those reserves, which were designed to address a smaller-scale shock, should exercise its permanent and indefinite line of credit from the U.S. Department of the Treasury to weather the pandemic.43 Pinto offers a different suggestion, saying that the shock exposes the excessive risk carried in FHA loans and the need to reduce that risk by lowering debt-to-income ratios, shortening mortgage terms (from 30 years to 20 years to pay off a greater share of the principal at the beginning of the loan), and making only purchase loans.44 Fortunately, the MMI Fund is in its best position in more than a decade to withstand a shock, with a capital ratio of 4.84 percent, well above the congressionally mandated 2 percent.45

Continuing eviction moratoria, forbearance, and other uncertainties and instabilities in housing markets may dissuade investors from housing finance, but federal government actions such as committing to backstop the MMI Fund or to tying the expiration of eviction moratoria to the federal pandemic emergency declaration, for instance, can provide investors with greater certainty.46 Layton says that, for renters, “if eviction moratoria are handled reasonably well in terms of being there during the pandemic crisis but ending in a reasonable manner, then I don’t believe it would have some permanent negative impact on the rental housing market. But if it is not ended reasonably — perhaps too early on one hand or lasting well past the official end of the pandemic national emergency on the other, then it could become very problematic.”47 The long-term impact of FHFA’s pandemic-related policies on the GSEs, including their capital reserves, is still unclear. Both Fannie Mae and Freddie Mac have hired financial advisors as they examine the possibility of exiting conservatorship.48

Three individuals packing canned goods into a cardboard box.
The CARES Act provided an additional $4 billion in funding for Emergency Solutions Grants to local governments to mitigate the impact of the novel coronavirus for individuals experiencing homelessness.

Some claim that the state and local eviction moratoria are unnecessary, do not consider the existence of temporary federal relief programs, and introduce long-term unintended consequences. Some of these unintended consequences may include landlords delaying maintenance and upgrades to their properties because of a lack of cash flow; delayed mortgage payments that negatively impact the owners of those mortgages; landlords postponing the property tax payments needed to fund local schools, fire departments, parks, and local police departments; landlords increasing rents or security deposits to recoup lost revenue and out of fear of future moratoria; and a reduction in the number of affordable housing units constructed. Joel Griffith, a research fellow at the Heritage Foundation, writes, “Those efforts represent an abdication of core government responsibilities; namely, enforcement of private contracts and protection of private property. Forcing property owners to provide free housing is a subtle form of expropriation of private property without just compensation.”49 Efforts to supplement income or provide rental assistance to help residents affected by the pandemic pay their rent may therefore be the preferred way to keep people in their homes, reducing evictions while compensating landlords.

Among the additional ongoing challenges for policymakers, researchers, and industry stakeholders are the data limitations associated with a fast-moving financial disruption. The difficulty of acquiring reliable data exacerbates a situation that is already considerably uncertain. For example, uncertainty about the servicing costs of new loans and liquidity pressures may cause credit standards to tighten. Evidence exists that the economic impacts to date have led lenders to add overlays beyond previous lending standards, making it harder for borrowers with lower credit scores, for example, to qualify for purchases or refinance loans.50 (For more about this emerging challenge and responses, see “The Federal Housing Administration: Bringing the Housing Finance System out of a Chaotic Situation”).

Lessons From Past Disruptions

Weicher stresses that the current health and economic circumstances are truly unprecedented. Certain aspects of the pandemic are similar to those of the 1918 influenza epidemic, and some aspects resemble those of the Great Depression, but today’s institutional and financial frameworks are dramatically different from what existed then.51

The current economic disruption also differs significantly from the Great Recession in that it did not emerge from the housing or housing finance markets; however, relevant lessons from the response to the recession as well as other disruptions, such as natural disasters, could still be applied today. The experiences, institutional arrangements, and relationships forged during and after the Great Recession are already informing institutional responses to the pandemic-induced disruption. Frank Vetrano, senior advisor at HUD, notes that experience with loss mitigation during the recession, even if not directly applicable to current circumstances, allows policymakers and industry stakeholders to craft responses using a toolbox rather than starting from a blank slate.52 Karen Hoskins, vice president of national homeownership programs and lending at NeighborWorks America, says that there are now established relationships between housing counselors and lenders formed during and after the 2008 financial crisis to help homeowners.53

The current disruption, rooted in often-abrupt, pandemic-related employment and income loss in what was otherwise a strong economy, resembles in many ways the aftermath of a natural disaster. Accordingly, FHA, VA, USDA, and FHFA have modeled their implementation of forbearance policies on their responses to the hurricanes of 2017. However, although the pandemic and the hurricanes are similar in that their onset was sudden, the hurricane model assumes that the period of increased unemployment is relatively brief and that prestorm employment and income levels are soon restored, says Vetrano. The period of high unemployment levels triggered by the pandemic is already longer than that following a typical natural disaster. Moreover, in the case of the pandemic, workers in certain industry sectors may be less likely to be able to return to their previous jobs, and they may remain unemployed or be underemployed when their forbearance ends.54 If renters and borrowers are unable to pay their bills beyond forbearance, the risks of widespread foreclosure and eviction will persist, and problems similar to those of the Great Recession could develop. In that case, renters and borrowers as well as mortgage lenders and servicers may need protections and assistance. Consumer protection regulations established following the Great Recession should prevent the problematic practices that emerged during the foreclosure crisis in the late 2000s. The liquidity issues that nonbank mortgage companies (both origination and servicing) experienced during the Great Recession, which led to failures and requests for aid, suggest that these companies may need continued support if defaults increase or the credit that they rely on to originate mortgages tightens precipitously. Nonbank mortgage companies originate and service a large share of the loans guaranteed by FHA and VA and securitized in pools guaranteed by Ginnie Mae.55

Evidence indicates that federal guarantees played an important role in helping stakeholders weather the Great Recession. Passmore and Sherlund find that counties with higher participation rates in government mortgage programs — in particular, higher levels of FHA participation — experience better economic outcomes than do counties more reliant on bank portfolio and private-label security loans, including smaller increases in unemployment, smaller declines in purchase originations, and smaller increases in mortgage delinquency. Not only were the government-backed loans issued in the runup to the crisis of higher credit quality than those backed by private-label securities (although these would have the strictest credit standards after the crisis), they also remained available throughout the recession, whereas private-label securitized loans largely disappeared. Passmore and Sherlund therefore conclude that government-backed securitization provides vital liquidity for “maintaining credit flows and economic growth during financial turmoil.”56 Present circumstances, in terms of credit quality, market shares, and other factors, differ from those during and immediately after the Great Recession in significant ways that would affect the applicability and impact of such interventions today.

Lessons can also be drawn from Great Recession programs aimed at helping borrowers who have defaulted or are at risk of defaulting on their mortgages. After examining various interventions during the Great Recession, McCoy concludes that, whenever possible, lenders should modify loan terms to lower monthly payments. Earlier interventions showed greater success in preventing redefault, suggesting that lenders should not delay in implementing modifications. McCoy also notes that keeping homeowners in their homes whenever possible, or at least keeping homes occupied, can help avoid foreclosures and the problems associated with vacancy and excess inventory. Research shows that participation in the Home Affordable Modification Program (HAMP) lowered redefault rates, but the program made fewer modifications than expected. Through paid subsidies to incentivize modifications, HAMP lowered borrowers’ monthly payments to 31 percent of gross monthly income for five years by lowering interest rates and, if necessary, extending the loan term or forbearing or forgiving loan principal.57 Agarwal et al. find that the shortfall in modifications resulted largely from low rates of modifications from a few large intermediaries for reasons specific to those entities.58 There are, however, consequences associated with modifications for borrowers, including negative impacts on credit. If modifications reach a high volume, they can affect the cost of credit for borrowers broadly.

Hardest Hit Fund programs were also used during the Great Recession to aid distressed borrowers. A study by Moulton et al. finds that temporary mortgage payment assistance through the Hardest Hit Fund was associated with a reduction of 28 percentage points in the probability of default at 48 months after the start of assistance. The effect was not driven by reduced mortgage balance, and the effect is larger for those who were underwater when assistance began.59 Studies by Agarwal et al., Ganong and Noel, Hembre, and Scharlemann and Shore support the conclusion that increased liquidity from a loan modification in the present is more helpful to borrowers than decreased debt burden in the long run.60 The Hardest Hit Fund did not reach borrowers as quickly as expected, particularly in Florida. There, the Office of the Special Inspector General for the Troubled Asset Relief Program finds that insufficient comprehensive planning and oversight and a lack of targets slowed implementation — conclusions that could be relevant for policymakers.61


The U.S. economy and housing markets were in strong positions entering the pandemic. This strong foundation, along with federal interventions such as income supplementation, protections for renters and borrowers, purchases to promote liquidity, and grants to local governments, have been essential for keeping people in their homes and keeping the housing finance system functioning well. Many of these interventions have been temporary and are currently or nearly exhausted or expired. Additional interventions and policies may be needed to continue to meet these goals. Although the pandemic and its related economic distress are in many ways unprecedented, policymakers can draw from past experiences — in particular, federal responses to natural disasters and the Great Recession — to inform future policies.

  1. U.S. Bureau of Labor Statistics. "Table A-15. Alternative measures of labor underutilization," Updated 5 June 2020. Accessed 29 June 2020; U.S. Bureau of Labor Statistics. "Table A-15. Alternative measures of labor underutilization," Updated 4 September 2020. Accessed 9 September 2020.
  2. U.S. Department of Labor. "Unemployment Insurance Weekly Claims Data," 12 March 2020. Accessed 23 September 2020.
  3. U.S. Department of Labor. "Unemployment Insurance Weekly Claims Data," 17 September 2020. Accessed 23 September 2020.
  4. Sara Canilang, Cassandra Duchan, Kimberly Kreiss, Jeff Larrimore, Ellen Merry, Erin Troland, and Mike Zabek. 2020. "Report on the Economic Well-Being of U.S. Households in 2019, Featuring Supplemental Data from April 2020," Board of Governors of the Federal Reserve System, 20–1; Frederick J. Eggers, Econometrica, Inc., and SP Group LLC. 2020. "Characteristics of HUD-Assisted Renters and Their Units in 2017," Prepared for U.S. Department of Housing and Urban Development, Office of Policy Development and Research, 24.
  5. "Unemployment Insurance Provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act," National Employment Law Project website ( Accessed 30 June 2020; "The CARES Act Provides Assistance to Workers and their Families," U.S. Department of the Treasury website ( Accessed 30 June 2020; "The CARES Act Provides Assistance to Small Businesses," U.S. Department of the Treasury website ( Accessed 30 June 2020.
  6. Executive Office of the White House. 2020. "Memorandum on Authorizing the Other Needs Assistance Program for Major Disaster Declarations Related to Coronavirus Disease 2019," 8 August.
  7. Interview with Don Layton, 6 July 2020; U.S. Department of Housing and Urban Development. 2020. "HUD Issues New CARES Act Mortgage Payment Relief for FHA Single Family Homeowners," 1 April press release; Consumer Financial Protection Bureau. 2020. "CARES Act Forbearance & Foreclosure."
  8. Consumer Financial Protection Bureau.
  9. "Fourth Consecutive Week of Forbearance Improvement," Black Knight website ( Accessed 18 September 2020.
  10. "Nearly Half of Homeowners in Forbearance Made April Mortgage Payments," Black Knight website ( Accessed 2 July 2020; "Fourth Consecutive Week of Forbearance Improvement," Black Knight website.
  11. Black Knight. 2020. "Mortgage Monitor: July 2020 Report," 10.
  12. "1.7M Forbearance Plans Set to Expire in September," Black Knight website ( Accessed 18 September 2020.
  13. Interview with Don Layton.
  14. U.S. Department of Housing and Urban Development. 2020. "HUD Issues New CARES Act Mortgage Payment Relief for FHA Single Family Homeowners."
  15. U.S. Department of Housing and Urban Development. 2020. "FHA Expands Home Retention Measures for Homeowners Financially Impacted By COVID-19," 8 July press release.
  16. Joint Center for Housing Studies of Harvard University. 2020. "America's Rental Housing," 13; Interview with Don Layton.
  17. U.S. Department of Housing and Urban Development. 2020. "Mortgagee Letter 2020-09: Implementation of the Coronavirus Aid, Relief, and Economic Security (CARES) Act Forbearance."
  18. "Resources for Renters," U.S. Department of Housing and Urban Development website ( Accessed 2 July 2020.
  19. U.S. Department of Housing and Urban Development. 2020. "FHA Extends Foreclosure and Eviction Moratorium for Homeowners through Year End," 27 August press release.
  20. "Housing Policy Impact: Federal Eviction Protection Coverage and the Need for Better Data," Federal Reserve Bank of Atlanta website ( Accessed 9 September 2020.
  21. U.S. Department of Health and Human Services and Centers for Disease Control and Prevention. 2020. "Temporary Halt in Residential Evictions to Prevent the Further Spread of COVID-19," Federal Register: 85:173, 55292, 55297.
  22. U.S. Department of Housing and Urban Development. 2020. "Addressing Tenant Concerns During the COVID-19 National Emergency," 1–2.
  23. U.S. Department of Housing and Urban Development. 2020. "HUD Provides Eviction Prevention and Stability Toolkit in Latest COVID-19 Response Effort," 8 July press release.
  24. U.S. Department of Housing and Urban Development. 2020. "Notice of Program Rules, Waivers, and Alternative Requirements Under the CARES Act for Community Development Block Grant Program Coronavirus Response Grants, Fiscal Year 2019 and 2020 Community Development Block Grants, and for Other Formula Programs," 5–7.
  25. U.S. Department of Housing and Urban Development. 2020. "CPD Program Formula Allocations and CARES Act Supplemental Funding for FY 2020."
  26. U.S. Department of Housing and Urban Development. 2020. "CARES Act Emergency Solutions Grant (ESG) Round 2 Funding under COVID-19 Supplemental Appropriations"; U.S. Department of Housing and Urban Development. 2020. "Flexibilities/Waivers Granted by the CARES Act + Mega Waiver and Guidance," 11.
  27. U.S. Department of Housing and Urban Development. 2020. "HUD Provides Remaining $2.96 Billion in CARES Act Funding for Homeless Populations Amid Coronavirus Recovery," 9 June press release.
  28. Interview with Don Layton.
  29. U.S. Department of the Treasury. 2020. "The CARES Act Provides Assistance for State, Local, and Tribal Governments."
  30. "County Responses to the COVID-19 Pandemic," National Association of Counties website ( Accessed 9 September 2020.
  31. Julia-Ambra Verlaine and Tristan Wyatt. 2020. "Sizing Up the Fed's Historic Coronavirus Crisis Intervention; While market strain triggered by pandemic has eased, stresses remain," Wall Street Journal, 9 April.
  32. Ginnie Mae. 2020. "Pass-Through Assistance Program Related to COVID-19 (PTAP/C19): Frequently Asked Questions."
  33. U.S. Department of Housing and Urban Development. 2020. "Housing Market Indicators Monthly Update," 1.
  34. Executive Office of the White House. 2020. "Executive Order on Fighting the Spread of COVID-19 by Providing Assistance to Renters and Homeowners," 8 August.
  35. Federal Housing Finance Agency. 2020. "FHFA Announces Payment Deferral as New Repayment Option for Homeowners in COVID-19 Forbearance Plans," 13 May press release.
  36. Federal Housing Finance Agency. 2020. "FHFA Announces Refinance and Home Purchase Eligibility for Borrowers in Forbearance," 19 May press release.
  37. Interview with Don Layton.
  38. Karan Kaul. 2020. "A Liquidity Vehicle for Mortgage Servicing Is in Consumers' Best Interest," Urban Institute.
  39. You Suk Kim, Steven M. Laufer, Karen Pence, Richard Stanton, and Nancy Wallace. 2018. "Liquidity Crises in the Mortgage Market," Brookings Papers on Economic Activity (Spring).
  40. Andrew Ackerman. 2020. "Fannie, Freddie Regulator Moves to Ease Cash Crunch at Mortgage Servicers; Servicers were on the hook for as long as a year's worth of payments on mortgages on forbearance. That has been capped at four months." Wall Street Journal, 21 April; Federal Housing Finance Agency. 2020. "FHFA Announces Refinance and Home Purchase Eligibility for Borrowers in Forbearance," 19 May press release.
  41. Mark Calabria. 2020. “Statement of Dr. Mark A. Calabria, FHFA Director, Before the U.S. Senate Committee on Banking, Housing, and Urban Affairs,” 9 June.
  42. Interview with Ed Pinto, 3 August 2020.
  43. Interview with John Weicher, 7 July 2020.
  44. Interview with Ed Pinto.
  45. U.S. Department of Housing and Urban Development. 2019. "FHA Releases 2019 Annual Report to Congress," 14 November press release.
  46. Interview with John Weicher.
  47. Interview with Don Layton.
  48. Fannie Mae. 2020. "Fannie Mae Hires Financial Advisor," 15 June press release; Freddie Mac. 2020. "Freddie Mac Announces J.P. Morgan as Financial Advisor," 15 June press release.
  49. Joel Griffith. 2020. "Why COVID-19 Eviction Moratoriums are Unnecessary, Unfair, and Economically Harmful," The Heritage Foundation.
  50. Michael Neal and Laurie Goodman. 2020. "The Pandemic Is Shrinking the Mortgage Credit Box," UrbanWire.
  51. Interview with John Weicher.
  52. Interview with Frank Vetrano, 17 July 2020.
  53. Karen Hoskins. 2020. "Lessons from the 2008 Crisis: COVID-19 Response and Recovery," NCRC webinar, 30 June.
  54. Interview with Frank Vetrano.
  55. Kim et al.
  56. Wayne Passmore and Shane M. Sherlund. 2016. "FHA, Fannie Mae, Freddie Mac, and the Great Recession," Finance and Economics Discussion Series 2016-031, Washington DC: Board of Governors of the Federal Reserve System, 1, 5, 21–2.
  57. Patricia A. McCoy. 2013. "The Home Mortgage Foreclosure Crisis: Lessons Learned," Joint Center for Housing Studies of Harvard University.
  58. Sumit Agarwal, Gene Amromin, Itzhak Ben-David, Souphala Chomsisengphet, Tomasz Piskorski, and Amit Seru. 2017. "Policy intervention in debt renegotiation: Evidence from the Home Affordable Modification Program," Journal of Political Economy 125:3, 654–712; Stephanie Moulton, Yung Chun, Stephanie Pierce, Holly Holtzen, Roberto Quercia, and Sarah Riley. 2020. "Does Temporary Mortgage Assistance for Unemployed Homeowners Reduce Longer Term Mortgage Default? An Analysis of the Hardest Hit Fund Program."
  59. Moulton et al.
  60. Sumit Agarwal, Gene Amromin, Itzhak Ben-David, Souphala Chomsisengphet, Tomasz Piskorski, and Amit Seru. 2012. "Policy Intervention in Debt Renegotiation: Evidence from the Home Affordable Modification Program," National Bureau of Economic Research Working Paper Series; Peter Ganong and Pascal Noel. 2018. "Liquidity vs. Wealth in Household Debt Obligations: Evidence from Housing Policy in the Great Recession," National Bureau of Economic Research Working Paper Series; Therese C. Scharlemann and Stephen H. Shore. 2015. "The Effect of Negative Equity on Mortgage Default: Evidence from HAMP PRA," Office of Financial Research Working Paper.
  61. Special Inspector General for the Troubled Asset Relief Program. 2015. "Factors Impacting the Effectiveness of Hardest Hit Fund Florida," 1, 20; U.S. Government Accountability Office. 2018. "Troubled Asset Relief Program: Monitoring of the Hardest Hit Fund Program Could Be Strengthened."


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