Research Report Improvements in the Loss Mitigation Toolkit Can Allow for Enhanced Access to Credit
Laurie Goodman, Jun Zhu
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During the COVID-19 pandemic, policymakers upgraded their loss mitigation waterfall to prevent a large-scale foreclosure crisis. As the first step in the loss mitigation process, borrowers were able to select forbearance, a temporary suspension of their mortgage payments. When the borrower exited forbearance, several options were available depending on the borrower’s financial circumstances; often, these missed payments were appended to the end of the mortgage. This study examines the impact these enhanced loss mitigation policies had on reducing the number of loans progressing from serious delinquency to foreclosure and liquidation, using detailed government-sponsored enterprise (GSE) loan-level performance data. Our findings suggest that placing forbearance as the first step of the loss mitigation hierarchy, provisions that have been made permanent, can enhance loss mitigation effectiveness by 46 percent. Holding loss severities constant, we estimate the GSEs could significantly expand access to credit, potentially approving at least 300,000 additional loan applications annually.

Research Areas Housing finance
Tags Federal housing programs and policies Housing finance data and tools
Policy Centers Housing Finance Policy Center
Research Methods Data analysis Quantitative data analysis
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