Helping homeowners during the Covid-19 pandemic: Lessons from the Great Recession

Abstract

The Covid-19 public health crisis has sharply reduced the earnings of millions of U.S. households, following the severe curtailment of economic activity needed to contain the spread of the virus. Meanwhile, households continue to confront their ongoing financial obligations. The ability of households to manage these obligations has important consequences for the speed at which the U.S. economy can recover from the current crisis. Households that are wiped out financially in the coming months will not be in a position to strongly resume spending once the virus containment issues have passed. Moreover, a wave of missed payments on mortgages and other types of household debt could propagate through the financial system-weakening financial institutions, unnerving investors, and further prolonging the economic slump. The risk that large numbers of households will lack the liquidity needed to meet their financial obligations is thus an important consideration for policymakers as they seek to mitigate the economic fallout from the Covid-19 pandemic. 1 Federal regulators and Congress have already enacted some policies to provide relief to households struggling to make payments on mortgages and student debt. These measures complement the substantial income support for households and subsidies for businesses in a series of fiscal packages that have already been passed. However, there is growing concern that these measures may not be large, timely, or targeted enough to avoid a substantial scarring of household balance sheets that would inhibit a strong recovery. In this Chicago Fed Letter, we explore lessons from policymakers' efforts to provide assistance to homeowners during the Great Recession of 2007-09. Our goal is to provide insights into the potential role of policy in improving outcomes for mortgage borrowers during the Covid-19 crisis. We come to three broad conclusions: 1. The specific type of assistance to mortgage borrowers must correspond to the nature of the economic shock. In general, payment relief is a more effective way to help struggling mortgage borrowers than debt forgiveness. But the Great Recession era programs that provided modest long-term reductions in required payments are not likely to be the solution in current circumstances that call for quick and sizable liquidity support.

Early impact of Covid-19 on private sector employees finance homeownership in Kingdom of Saudi Arabia

“…In the USA, in the study conducted by Ettman et al (2021), it was found that citizens with fewer properties had higher exposure to financial stressors because of the pandemic and a higher prevalence of probable depression than persons with more properties. Also, Amromin (2020) opined that a wave of missed payments on mortgages could propagate a negative impact on the USA's financial system. The possible outcomes may frighten investors in the housing sector, weakening financial institutions and further prolong the economic slump if there is no significant intervention.…”

Exploratory study: Financial behaviour of qualified financial professionals during South Africa’s lockdown

“…Similar relief aids were provided during the great recession of 2007-2009 to mortgage borrowers in the form of acceptable long-term reductions in required payments (Amromin, Dokko & Dynan 2020). The reasons for the assistance provided were because of inadequate resources to make required payments and being in negative equity as a result of a decline in house values (Foote, Gerardi & Willen 2008).…”

“…The reasons for the assistance provided were because of inadequate resources to make required payments and being in negative equity as a result of a decline in house values (Foote, Gerardi & Willen 2008). During the great recession, homeowner assistance programmes were predominantly aimed at decreasing compulsory mortgage payments to meet a target paymentto-income ratio (Amromin et al 2020). However, for the COVID-19 pandemic, rapid and substantial liquidity support was required.…”

“…One way which will result in substantial mortgage payment relief is through forbearance. This entails lowering or cancelling mortgage payments for a limited period (Amromin et al 2020).…”

Coethnic Concentration and Asians’ Perceived Discrimination across U.S. Counties during COVID-19

“…For instance, in March 2020, Los Angeles County in California promulgated nine public health orders, whereas Orange County, a neighboring county, implemented only four (Goldhaber-Fiebert et al 2021). Additionally, there is widespread county-level variation in the severity of COVID-19 infections and economic fallout (Aaronson and Alba 2020; Paul, Englert, and Varga 2021).…”