COVID-19 and the CARES Act: racial disadvantage, mortgage relief, and foreclosure in Tuscaloosa county, Alabama

Abstract

ABSTRACT The 2020 CARES Act provided mortgage relief to financially distressed borrowers whose loans were insured by the U.S. government. We used cumulative disadvantage theory to examine the effects of mortgage relief in a Deep South County with a history of racial disparities in mortgage lending and homeownership. We collected property and open-access data for a five-year period (2016–2020) to compare pre-moratorium and in-moratorium trends in foreclosure. Fifty-eight (58) foreclosures took place during the moratorium year of 2020, a 50.7% drop from the year before. Non-lender foreclosures, typically initiated by HOAs and utility companies for nonpayment of fees and services, accounted for 40% of the in-moratorium foreclosures, and were spatially defined by race. Trigger events included divorce, death, and incarceration, as well as high debt loads that led most foreclosures to file for bankruptcy prior to foreclosure. Overall, mortgage relief mitigated the risk of foreclosure, suggesting that the Act had blunted the effects of housing disadvantage. The effects were greater for non-Hispanic Black borrowers who experienced higher rates of foreclosure prior to the COVID-19 pandemic. On balance, the Act helped borrowers who qualified for mortgage forbearance, but its exclusions and caveats meant that other borrowers did not receive similar relief.