Tuesday
October 21, 2014

Did Expanded Jobless Benefits Lead to Lower Foreclosure Rates?

|
-A A +A

Did Expanded Jobless Benefits Lead to Lower Foreclosure Rates?

A new study suggests that about 1.4 million foreclosures between 2008 and 2012 were prevented because the expansion of unemployment insurance benefits cut the likelihood of mortgage delinquency.

NAR recently highlighted the effects unemployment has on the housing market.

“This finding implies that unemployment insurance played an important role in preventing mortgage default during the Great Recession, despite neither being targeted at mortgage borrowers nor being promoted as a housing policy,” according to the working paper from the National Bureau of Economic Research by a team of researchers from the Federal Reserve and Northwestern University.

From 2008 and 2012, about 5 million foreclosures were completed nationwide, according to data from CoreLogic. The 1.4 million avoided foreclosures that researchers attribute to unemployment insurance would have represented a substantial portion of distressed properties during that time, the paper notes.

“Policies improving borrowers’ ability to pay can be effective in reducing delinquency risk, even among those with incentive to strategically default,” researchers note. “[Unemployment insurance] extensions during the Great Recession created a substantial welfare gain, especially in light of evidence that the extensions created minimal distortions to job search.”

The report also noted that having fewer distressed properties cut the government’s cost by decreasing the number of bad loans that would have been covered by government-sponsored enterprises Fannie Mae and Freddie Mac. The researchers estimate that the savings related to Fannie and Freddie decreased net costs for the government’s jobless benefits expansion by about one-fifth.

Source: “Expanded Jobless Benefits Prevented More Than 1 Million Foreclosures,” The Wall Street Journal (Aug. 4, 2014)