To help American households in distress during the COVID-19 pandemic, the U.S. government has put in place a variety of programs and policies to help renters and homeowners with mortgages. When the pandemic hit in early 2020, homeowners had far more equity in their homes than they did at the start of the Great Recession, leaving them in better financial shape than they were then and they took advantage of the rise in real estate prices. The tenants weren’t so lucky. Rents fell slightly below trend for a few months at the start of the pandemic, then accelerated.
Congress has said homeowners who are struggling can defer payments on their federally backed mortgage for up to 18 months without penalty (known as forbearance). Many non-federally backed mortgage managers have voluntarily done the same. Additionally, mortgage rates have fallen, in part due to Federal Reserve actions, allowing many homeowners to lower their monthly payments by refinancing their loans. For renters, Congress implemented the $46 billion Emergency Rental Assistance (ERA) program to help eligible households pay rent and utility bills. This program, coupled with federal, state and local moratoriums on evictions, has helped keep renters in their homes.
Housing Policy Evidence
- The National Forbearance Mandate, Foreclosure Moratorium, Enhanced Unemployment Insurance (UI), and Economic Impact Payments (EIP) helped reduce financial distress for landlords and renters early in the pandemic and avoided longer-term problems in the mortgage and housing markets.
- More than 80% of borrowers who missed a mortgage payment in the first three months of the pandemic signed up for forbearance. Although minority mortgage borrowers were significantly more likely to experience distress and miss mortgage payments, subject to missing payments, adoption of forbearance was similar across racial and ethnic criteria.
- Low interest rates led to a wave of refinancing, but fewer black borrowers received refinancing than white borrowers.
- The share of renters in arrears with rent payments has been above 2017 levels since 2020. Renter households that missed a rent payment were more likely to be low-income households and were disproportionately minority households. Missed payments were more common among households that were struggling before the pandemic. The erratic deployment of ERA, which was administered locally, prevented quick or easy access to these funds.
- Moratoriums on evictions led to a redirection of scarce household resources to immediate consumption needs and likely prevented homelessness. The decline in evictions during the pandemic is not solely the result of the eviction moratorium. The decline may also reflect the impact of ERA, better access to legal aid, the impact of eviction diversion programs, and household income replacement.
Lessons learned from housing policy during COVID-19
A generous replacement income may be enough to support renters and homeowners if policymakers are only concerned with the incremental effect of the recession on those who were working in the formal market before the recession. For tenant households who had precarious housing before the pandemic, many with no formal connection to the labor market, this income replacement, the eviction moratorium and ERA helped to offset losses associated with the pandemic. However, these programs have not addressed the long-standing issues of this segment of the population that have been compounded by the pandemic.
Unlike the affordable home modification program implemented during the Great Recession, enrollment for forbearance required no documentation from borrowers. But it’s unclear whether it would be as effective in a future crisis as the state of the pre-pandemic housing and mortgage markets and the dynamics of the pandemic were almost perfectly set up for forbearance to be effective: the rapid recovery in the labor market meant that most borrowers only needed a few months of help, the majority of outstanding mortgage debt was insured by the US government, and the housing market was exceptionally healthy.
Lower mortgage interest rates had more modest effects: most borrowers struggling with pandemic-related financial difficulties were less likely to refinance. To ensure that the benefits of lower mortgage rates reach a wider range of borrowers in future recessions, alternative mortgage products could be developed and marketed that automatically reduce payments when rates fall and support more uptake. widespread use of streamlined refinancing programs that do not require employment. or income verification.
While the eviction moratorium has dramatically reduced the number of repositories where this data can be tracked, an eviction moratorium alone is not a long-term solution. The tenant still owes the money and may not have the resources to pay. Eviction moratoriums have negative externalities for landlords and are second best to ERA. A successful ERA program could prevent tenant delinquency rates from rising during and after recessions. Such a program should be streamlined, with simple application, minimal documentation, and clear eligibility rules, like the successful forbearance program.