In contrast, Great Recession-era programs with strict documentation requirements suffered from low uptake.
During the Great Recession, programs aimed at helping struggling homeowners came with significant documentation requirements. Studies have since shown that those requirements hampered the success of many of these programs. The Hardest Hit Fund (HHF) was established in 2010 to offer mortgage payment assistance for unemployed or underemployed homeowners. By the end of 2016, only 292,000 homeowners had benefited from the HHF. The Home Affordable Unemployment Program (UP) was introduced in 2010 to provide assistance to unemployed homeowners who were unable to make their mortgage payments. At of the end of 2016, only 46,485 homeowners were participating in the UP program. Similarly, mortgage modification programs such as the Home Affordable Modification Program (HAMP) also had low uptake. Between March 2009 and June 2010 about 55 percent (almost 675,000) of HAMP trial modifications were cancelled because homeowners could not provide the requisite income verification documentation. By April 2015, more than one million homeowners had been denied a HAMP modification because they did not provide the financial and/or hardship verification documentation required to complete the evaluation of their request in a timely manner. Finally, research has shown that similar requirements associated with refinancing programs during this time (e.g., the Home Affordable Refinance Program) limited uptake to less than 50 percent of eligible borrowers. As a result, these refinancing programs had modest effects on foreclosure rates.
JPMC Institute data also show little evidence of strategic default among homeowners
During the Great Recession, many homeowners were underwater and policymakers were worried about strategic default—the risk that homeowner would walk away from their debt obligation once the mortgage exceeded the value of their home. Evidence suggests, by and large, homeowners did not do this. Using mortgage servicing and deposit account data, JPMC Institute research shows that for borrowers who defaulted on their mortgage, default closely followed a negative income shock regardless of their level of home equity. This was true even when the homeowner was deeply underwater. (Figure 2) This result is inconsistent with the simple type of strategic default described above. Ganong and Noel (2020), using JPMC Institute data, compare underwater borrowers to a group with no strategic default motive: borrowers with positive home equity. They find that only 3 percent of defaults are caused exclusively by negative equity and that adverse events are a necessary condition for 97 percent of mortgage defaults. This suggests that homeowners see their homes as more than a financial asset and place a high priority on being able to remain in their homes.