An updated tally by Moody's Analytics shows that 6.5 million homeowners have lost their homes in the housing bust so far. And for most of them, the proximate cause of foreclosure was unemployment. Losing a job meant losing the income to pay the mortgage, while depressed house values meant that struggling homeowners could not tap their equity to help cover their monthly expenses or sell at a price high enough to pay off their mortgage.
Many unemployed homeowners, however, managed to hang on. A new study explains how.
The study, undertaken by researchers at the Federal Reserve Board of Governors and Northwestern University and summarized here by the Times's Lisa Prevost, found that from July 2008 through December 2012, $250 billion in federally funded unemployment benefits helped homeowners avoid an estimated 1.4 million foreclosures.
That eclipses the 800,000 foreclosures that were prevented as of 2013 by the government's main anti-foreclosure program, Home Affordable Modification Program, or HAMP. At its outset in 2009, HAMP was touted as a way to help 4 million people avoid foreclosure, but the effort was doomed by its poor design and chaotic execution.
The study also found that by preventing foreclosures, the $250 billion in federal jobless benefits saved the government $46 billion it would otherwise have lost on government-backed mortgages and avoided $70 billion in deadweight losses from foreclosures, including the decline in value of nearby properties and the destruction of value in deteriorating vacant homes.
According to the study, the impact of federal jobless benefits in preventing foreclosure was especially great in households that had limited assets to fall back on and that owed significantly more on their mortgages than their homes were worth. Those findings rebut the notion, advanced by banks and some government officials during the depths of the housing bust, that lower income/lower wealth households were too far gone financially to be rescued. In fact, the modicum of help provided by federal unemployment benefits was enough to allow many of them to keep their homes.
Unfortunately no good policy goes unpunished in today's dysfunctional Congress. At the end of 2013, Congress let the federal program for unemployment benefits expire, abruptly cutting off 1.3 million jobless Americans and denying benefits to millions more who would have become eligible this year if only the federal program were still up and running. In recessions and recoveries going back to 1958, no Congress has ever let federal jobless benefits expire when the need has been as great as it is today. A few attempts by Democrats to restore the benefits have been rebuffed by Republicans.
The new study suggests that the untimely end of federal jobless benefits will cause many families to lose their homes – among other hardships. That's because 8.1 million homeowners still owe more on their mortgages than their homes are worth. As such, they are by definition at risk of foreclosure. The lack of federal jobless benefits only intensifies that risk.