Labor outcomes of mortgage payment subsidies for unemployed homeowners

Policy interventions often target negative shocks to employment or housing as independent events. For instance, unemployment benefits aim to make up for lost earnings while mortgage assistance programs aim to prevent foreclosures. Yet, research suggests that housing markets and labor markets are systematically correlated. In this paper, we test the extent to which temporary mortgage payment relief improves long-term labor outcomes. We use data on unemployed homeowners who sought assistance through the U.S. Department of Treasury's Hardest Hit Fund program in Ohio, which subsidized the mortgage payment for unemployed homeowners for up to 18 months while they searched for a job. Through event study difference-in-differences models with individual fixed effects, we find that the receipt of mortgage payment subsidies extends the duration of unemployment in the short term but results in significantly higher earnings and a higher probability of being employed over the long term. These positive long-term findings, however, are only observed when mortgage payment relief is provided shortly after the onset of the unemployment shock. This highlights the importance of timely intervention to not only prevent foreclosures but also to improve labor market outcomes for homeowners experiencing an income shock.

We thank the Ohio Housing Finance Agency for research support. Additional research assistance for this project was provided by Olga Kondratjeva. Funding for this research was provided by the John D. and Catherine T. MacArthur Foundation, Grant No: 13-103361-000-USP, “How Housing Matters to Families and Communities”, Title: A Multistate Study of Housing and Employment Impacts of Foreclosure Prevention Programs. The views in this paper are those of the researchers and do not represent the views of The MacArthur Foundation, The Ohio Housing Finance Agency, The Ohio State University, or any other government agency.