Helping Homeowners

Creating Mortgage Assistance Programs That Work: Lessons From the Great Recession
By Liz Farmer, October 28, 2020


As the pandemic wears on and unemployment remains in the high single digits, nearly 10 million Americans are now either behind on their housing payments or have little confidence they will be able to make their next payment on time. Federal and state moratoriums stopped evictions and foreclosures temporarily, but simply hitting a pause button won’t keep people in their homes—and many worry that a housing crisis is looming as these protections expire.

As cities and states work to keep people from losing their homes, they could learn from some of the lesser-known responses to the Great Recession. The experience of two states that invested in mortgage relief can offer guidance for places that may be wondering how to implement this kind of assistance effectively—and how to keep it going when the immediate public health emergency winds down and federal funds dry up. Their experience indicates the investment can pay huge dividends, not only to the homeowner but also to society at large.

Oregon Homeownership Stabilization Initiative

In Oregon, an agency created to administer federal funds demonstrated how to adapt a program over time to keep it effective through a yearslong crisis. One of the first state programs launched with federal funds from the $8 billion Hardest Hit Fund (HHF), the Oregon Homeownership Stabilization Initiative (OHSI) has so far helped more than 16,000 families keep their homes via more than $300 million in direct assistance, primarily in the form of no-interest, five-year, forgivable loans. As long as homeowners do not sell their homes or refinance them for cash, 20 percent of the loan is forgiven each year; after five years, the entire loan is forgiven.

Oregon was one of 18 states that tapped the HHF, which the Obama administration created in 2010 to stave off a second foreclosure crisis. The HHF assisted nearly 400,000 homeowners across the country through 2019, and the vast majority received direct assistance on their mortgage. Unlike other federal foreclosure programs, HHF did not require that homeowners be delinquent on their mortgages to receive assistance—a feature of state and some local pandemic housing assistance funds today that’s intended to provide relief quickly, before the problem becomes acute.

Each state had the flexibility to create its own program, as long as it aligned with the federal guidelines. This flexibility was a key component, as Oregon officials quickly found that they needed to adapt their program design to ensure equal access to assistance, said OHSI administrator Carmel Charland. One of the first adjustments they made was in response to the volume of applications they received. During the program’s first two months, OHSI received roughly 20,000 applications—a number so overwhelming, the initiative temporarily closed the application portal. Eventually, they shifted to opening the portal every other week and capping the number of applications.

That helped the workflow, but administrators realized residents in rural areas that lacked access to high-speed internet weren’t getting an equal shot at submitting an application. So they granted rural areas access first and allocated a certain number of slots by county.

By 2015, Oregon’s housing market had stabilized and the economy had generally recovered, so OHSI’s assistance shifted toward things like helping homeowners renegotiate and pay off back taxes or a second lien on their home. A principal reduction program has helped homeowners on a fixed income pay off or reamortize their loans to make housing more affordable. By the end of 2016, the OHSI program had a 92 percent retention rate, meaning more than nine out of 10 homeowners stayed in their homes, Charland noted.

Oregon effectively adjusted its program through the years, evolving from an urgent response to homeowners facing foreclosure during the Great Recession to a stable resource for households facing new financial hardships with limited options, said Jess Wunsch, an urban planner and Lincoln Institute of Land Policy research assistant. “They were innovative in several ways, and by creating multiple programs, they essentially were able to continue helping people through whatever iteration of assistance was needed most to prevent foreclosure,” said Wunsch.

Administrators in Oregon had time to adapt in part because the HHF made funding available for many years. Indeed, new research shows that the HHF successfully kept people in their homes, in part due to the long-lasting nature of the program. A working paper published earlier this year by researchers from Ohio State University, Washington University in St. Louis, and the University of North Carolina at Chapel Hill found that homeowners who received HHF money were 47 percent less likely to be in default after 12 months. What’s more, the reduced risk of mortgage default persists for at least two years after assistance ends. In short, one in four of these assisted homeowners would have entered foreclosure in severe default absent the HHF program, the study concludes.

Timing is critical. A foreclosure intervention at the beginning of an economic shock can have an important ripple effect, the authors of the working paper said, noting that avoiding severe defaults resulted in about $9 billion in cost savings to lenders, investors, the secondary market, and local governments. “This does not include,” the authors added, “the benefit to individual homeowners of retaining ownership in their homes and preventing damage to their consumer credit, nor spillover effects on local property values.”

One Chicago-area study from 2005 expands upon the notion of spillover costs to municipalities and residents living near a foreclosed property. The research paper, commissioned by the Homeownership Preservation Foundation, estimated a foreclosure could directly cost local government agencies more than $34,000 and reduce nearby property values and home equity by an additional $220,000.

“Foreclosure prevention programs allow families to maintain the home equity they have built while preventing widespread displacement that would negatively impact households and communities,” Wunsch said. “This is particularly important for lower-income households and households of color who are most likely to be impacted during an economic downturn and have historically been excluded from homeownership in this country.”

Oregon was winding down its program in accordance with HHF guidelines in 2020 when the pandemic hit. Treasury granted OHSI an extension on its use of federal funds, and the initiative used that extension to open a COVID-19 Mortgage Relief program.

In the current recession, states have received billions in federal Coronavirus Aid, Relief, and Economic Security Act (CARES Act) funds, including housing assistance. But a spending deadline of December 31, 2020, has left governments scrambling to spend what they can while the public health crisis itself is adhering to no such end date. The $2.2 trillion stimulus bill approved by the House of Representatives on October 1 includes $50 billion in emergency rental assistance funds and a homeowner assistance fund with up to $80 million for each state. But the Senate had not taken it up at press time, and the prospects of any new federal aid are uncertain. So how can a state keep an assistance program running, given the unpredictability of federal funding? Pennsylvania’s temporary mortgage payment assistance program, a state-funded program that dates to 1983, demonstrates one strategy states can use to create a more lasting policy response to the moment.

Pennsylvania’s Homeowners’ Emergency Mortgage Assistance Program

In Pennsylvania, the Homeowners’ Emergency Mortgage Assistance Program (HEMAP) provides loans to homeowners that must be repaid with interest, which differentiates it from the HHF. This allows HEMAP to recover a large share of its costs. Between 2007 and 2010, loan repayments represented roughly half of the program’s funding, according to the Pew Charitable Trusts; the balance came from state appropriations.

The repayment requirements still produce highly effective outcomes. A 2011 analysis by the Federal Reserve Bank of New York found that HEMAP had kept 80 percent of participants in their homes. The New York Fed also estimated the cost of running HEMAP was significantly cheaper than running federally funded programs: just 22 cents on the dollar.

Despite the documented successes of the program, however, state funding has been sporadic, making it vulnerable to cuts during or after recessions. In fact, in 2012 the Pennsylvania Housing Finance Agency temporarily suspended the program because of funding shortfalls.

This year, Pennsylvania allocated $175 million of its $39 billion in federal CARES Act funding for housing assistance, setting aside $25 million of that for a new Pandemic Mortgage Assistance Program to be used this year. The process slowed because the state’s enabling legislation included a multitude of requirements for applicants, according to a spokesman for the agency, but the state housing agency pushed back against these requirements. As a result, the legislature allowed the agency to move the assistance application deadline a month later than it was originally slated, to November 4, and to waive a requirement for applicants to be 30 days in arrears, among other changes.

The future of mortgage assistance funding is in question, but it’s clear the need for such assistance will remain. As Pennsylvania has shown, mortgage assistance programs can be sustained even in the absence of federal help. And Oregon’s experience shows the benefits of adapting the needs and types of assistance as the economy changes.

“There’s so much more experience available now for how to create better processes and address those bigger systemic problems of how to be more resilient,” said Charland of OHSI. “That’s the legacy of the Hardest Hit Fund: how we can do the next thing better.”



Liz Farmer is a fiscal policy expert and journalist whose areas of expertise include budgets, fiscal distress, and tax policy. She is currently a research fellow at the Rockefeller Institute’s Future of Labor Research Center. 

Image: Adaptability to changing circumstances is key to helping homeowners avoid foreclosure, according to states that have run successful mortgage assistance programs. Credit: Taber Andrew Bain via Flickr CC BY 2.0.




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