NEW YORK – The Federal Reserve Bank of New York today released Help for Unemployed Borrowers: Lessons from the Pennsylvania Homeowners’ Emergency Mortgage Assistance Program, the latest article in its Current Issues in Economics and Finance series from the Research and Statistics Group.
New analysis in the article suggests that direct government lending to a carefully screened group of unemployed borrowers—similar to the Pennsylvania Homeowners’ Emergency Mortgage Assistance Program (HEMAP)—can successfully reduce foreclosures. The positive track record of Pennsylvania’s HEMAP could help inform policymakers’ future efforts to address the problem of delinquent unemployed borrowers facing foreclosure.
In this article, authors James Orr, John Sporn, Joseph Tracy and Junfeng Huang examine the structure and performance of Pennsylvania’s HEMAP and offer a comparison with federal mortgage relief programs. Additionally, the authors provide a number of suggested refinements to Pennsylvania’s HEMAP that policymakers might wish to consider if a similar program were to be implemented elsewhere.
For more than 25 years, Pennsylvania’s HEMAP has provided temporary financial assistance to borrowers who become delinquent because of unemployment or other financial hardship beyond their control. Most participants retain their homes while paying off their loans, a measure of the program’s success, according to the authors. The effectiveness of this type of assistance is likely linked to the program’s careful screening process, which limits participation to applicants with a good mortgage payment history and a high statistical probability of resuming their full mortgage payment within two years. For these applicants, the program appears to provide a useful alternative to a loan modification. Also, the taxpayer cost of a HEMAP loan can be substantially lower than the cost of other relief initiatives.
The authors also offer several possible enhancements to the program, such as improving the targeting and timing of benefits as well as tightening the loan approval criteria. Such steps should help lower the risk of loan defaults and also reduce the size of the loans needed by borrowers.
James Orr is an assistant vice president and John Sporn an assistant economist in the Research and Statistics Group of the Federal Reserve Bank of New York; Joseph Tracy is an executive vice president and senior advisor to the Bank’s President; Junfeng Huang is a senior bank examiner in the Bank’s Financial Institutions Supervision Group.