As further evidence that the foreclosure crisis is coming to a close, July 2014 marked the 46th consecutive month of year-over-year decreased foreclosure activity in the U.S. While Illinois still experienced the fourth highest level of foreclosure activity among the states, foreclosure activity was still down from a year ago, for the 20th consecutive month. As the crisis improves nationally, it is important to assess what has worked and not worked in bringing relief. Federal programs targeting families in distress show a broad reach but perhaps less impact than hoped. And one new study has illuminated how unemployment insurance appears to have played a surprisingly important role in curbing foreclosures during the Great Recession.
Predictably, the billions of dollars spent to prevent foreclosures through federal recovery programs have had a positive impact. The Home Affordable Modification Program (HAMP) program saved nearly a million households from foreclosure. Moreover, through March of this year, the federal Hardest Hit Fund (HHF) spent $3.6 billion to help over 178,000 households avoid foreclosure. These programs and others such as those funded by Department of Justice settlements directly target families in distress and have made some of the on-the-ground difference communities need. But, while we should continue to make programs like HAMP and HHF available to families at risk of foreclosure, these programs did fall short of their goals and served far fewer families than initially planned.
A loss of income undeniably impacts a household’s ability to pay the mortgage, but the receipt of unemployment insurance benefits has not previously been considered as a tool for foreclosure prevention. A July 2014 report on a study from the Federal Reserve and the Kellogg School of Management may change that. The study found a direct correlation between a state’s extension of unemployment insurance benefits and a decline in mortgage delinquency and default, and foreclosure-related relocations and evictions.
According to the study, unemployment insurance benefits in states with higher maximums prevented significant numbers of delinquencies among laid-off workers. Where unemployment insurance benefits were higher, foreclosure-related evictions were cut almost in half. Moreover, federal measures that extended the length of unemployment insurance during the recent recession also prevented delinquencies by similar rates.
These results underscore the significant role that unemployment insurance can have in preventing unemployed homeowners from losing their homes. The researchers found that, as a result of unemployment insurance extensions between 2008 and 2013, approximately 2.7 million delinquencies were averted, and 1.4 million foreclosures prevented. Thus, unemployment insurance helped more homeowners than other federal foreclosure prevention programs, and should be considered as a key foreclosure prevention strategy.
The benefits of unemployment insurance don’t end there. The research additionally found that increased unemployment insurance benefits resulted in better credit access for laid-off workers, both in terms of credit availability and lower interest rates. The study also revealed more dramatic benefits to lower-income households, in particular households earning less than $35,000 a year – those individuals just below HUD’s Area Median Income for Chicago, for example, who are more likely to be more housing cost-burdened.
By keeping people housed at all income levels after they lose work, we can reduce reliance and strain on other programs. Since housing, wages, and available income are all interrelated in our economy, an improvement in one arena is likely to have an effect across the board, particularly in times of crisis.