Evaluating the Benefits of a Streamlined Refinance Program

Gerardi, Kristopher; Loewenstein, Lara; Willen, Paul S.

doi:10.26509/frbc-wp-202021

Cited by 5 publications

(4 citation statements)

References 8 publications

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“…One possibility is to increase the prevalence of streamlined refinance programs. Gerardi, Loewenstein and Willen (2020) argued that a streamlined refinance program that did not require documentation of employment or income during the early stages of the pandemic would have provided necessary payment relief to many borrowers who had experienced financial hardship. Another possibility would be to expand the use of adjustable-rate mortgages or other types of mortgage products that automatically pass interest rate declines through to borrowers.…”

Section: Lessons Learnedmentioning

confidence: 99%

Untitled

2022

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This article evaluates how the most important policy responses to the COVID-19 pandemic affected the US mortgage market. In particular, we consider the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020; the follow-on American Rescue Plan (ARP) Act of 2021, which extended many of the provisions in the CARES Act; and the Federal Reserve's large-scale asset purchase (LSAP) program that was announced in March 2020. Our analysis considers both the aggregate effects and the distributional effects of these policies on mortgage borrowers. Overall, we find that pandemic-era forbearance worked very well in reducing foreclosures and mortgage delinquencies for all borrowers, better than the mortgage modification programs of the Great Recession, both because there were fewer restrictions and because the economic environment was so different. In contrast, while many borrowers benefited from the huge decline in mortgage rates caused, in part, by the LSAP program, Black and Hispanic borrowers were far less likely to benefit than White borrowers due to significantly slower refinancing speeds. Key findings:1. Forbearance, expanded unemployment insurance (UI) benefits, and economic impact payments (EIPs) were quite effective in alleviating financial distress for mortgage borrowers at the outset of the pandemic and in preventing longer-run problems in mortgage and housing markets.2. Minority mortgage borrowers were much more likely to experience distress and miss mortgage payments during the pandemic period, which was likely due, in part, to higher rates of job loss. However, we show that minority borrowers who missed mortgage payments were just as likely to use forbearance as White borrowers who missed mortgage payments.3. Low long-term interest rates, due in part to the Federal Reserve's large-scale asset purchases, spurred a refinancing wave. While borrowers who were enrolled in forbearance were unable to refinance, a large fraction of borrowers who remained current on their loans during the height of the pandemic took advantage of the refinancing opportunity and significantly lowered their payments.4. Unlike forbearance, however, there were large differences in refinancing behavior across racial and ethnic groups. Through March 2021, only 10.6 percent of Black borrowers refinanced as compared with 15 percent of Hispanic borrowers, almost 19 percent of White borrowers, and 22 percent of Asian borrowers. After controlling for basic Lessons Learned from Mortgage Borrower Policies and Outcomes during the COVID-19 Pandemic

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Section: Lessons Learnedmentioning

confidence: 99%

Untitled

2022

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“…Lowered mortgage rates resulted in about $100 billion in lower payments for mortgage borrowers who refinanced (Gerardi and others 2021). See Gerardi, Lowenstein, and Willen (2021) for a discussion of the additional potential benefits of a more streamlined refinance program.…”

Section: Figure 1 Structure Of Typical Great Recession Mortgage Modif...mentioning

confidence: 99%

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Noel¹,

Susan²

2022

Brookings Papers on Economic Activity

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We study the suspension of household debt payments (debt forbearance) during the COVID-19 pandemic. Between March 2020 and May 2021, more than 70 million consumers with loans worth $2.3 trillion entered forbearance, missing $86 billion of their payments. This debt relief can help explain the absence of consumer defaults relative to the evolution of economic fundamentals. Borrowers' self-selection is a powerful force in determining forbearance rates: relief flows to households suffering pandemic-induced shocks that would otherwise have faced debt distress. Moreover, 55 percent of forbearance is provided to less creditworthy borrowers with above median income and higher debt balances-that is, those excluded from income-based policies, such as the stimulus check program. A fifth of borrowers in forbearance continued making full payments, suggesting that forbearance acts as a credit line. By May 2021, about 60 percent of borrowers had already exited forbearance while more financially vulnerable and lower income borrowers were still in forbearance with an accumulated debt overhang of about $60 billion. Exploiting a discontinuity in mortgage eligibility under the CARES Act, we estimate that implicit government debt relief subsidies increase the rate of forbearance by about a third. Government relief is provided through private intermediaries, with shadow banks less likely to provide forbearance than traditional banks.

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“…and find that NPIs are associated with better economic outcomes in the medium term. 5 Regarding the distributional effects and the designs of the COVID-related government policies, Glover and others (2020) study optimal mitigation and redistribution policies, and find that the young who work in the sector partially shuttered would lose the most, especially when it is costly to soften the distributional consequences via public transfers; Furceri and others (2020) find that major epidemics in the last two decades have led to increases in multiple measures of inequality in affected countries, despite being much smaller in scale than COVID-19;Bronka, Collado, and Richiardi (2020) find that the UK's COVID rescue package would have a progressive effect and reduce poverty rate by 1.1 percentage points; Gerardi, Loewenstein, and Willen (2020) analyze the effects of a streamlined refinance program that allows borrowers to refinance without providing employment or income documents; Goodman and Magder (2020) discuss the renter direct payment program that aims at assisting renters who are disproportionally affected by the pandemic. 6…”

Section: Literature Reviewmentioning

confidence: 99%

US Housing Market during COVID-19: Aggregate and Distributional Evidence

Zhao

2020

SSRN Journal

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Using zip code-level data and nonparametric estimation, I present eight stylized facts on the US housing market in the COVID-19 era. Some aggregate results are: (1) growth rate of median housing price during the four months (April-August 2020) since the Federal Reserve's unprecedented monetary easing has accelerated faster than any four-month period in the lead-up to the 2007-09 global financial crisis; (2) the increase in housing demand in response to lower mortgage interest rates displays a structural break since March 2020 (housing demand has increased by much more than before). These results indicate either the existence of "fear of missing out" or COVID-induced fundamental changes in household behavior. In terms of distributional evidence, I find that the increase of housing demand seems more pronounced among the two ends of the income distribution, possibly reflecting relaxed liquidity constraints at the lower end and speculative demand at the higher end. I also find that the developments in housing price, demand, and supply since April 2020 are similar across urban, suburban, and rural areas. The paper highlights some potential unintended consequences of COVID-fighting policies and calls for further studies of the driving forces of the empirical findings.

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Evaluating the Benefits of a Streamlined Refinance Program

Cited by 5 publications

References 8 publications

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US Housing Market during COVID-19: Aggregate and Distributional Evidence

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