Contrary Study – Retirement Research Center

The Great Depression has almost faded from our collective memory. But for those who lost their homes to foreclosure in the subprime mortgage scandal, the recession is still affecting their finances.

A home is usually a worker’s biggest asset. But 15 years after the foreclosure wave, the homeownership rate for foreclosure victims remains well below the rate for people who were in the same financial situation at the time but managed to keep their properties.

And although the credit scores of 1.8 million homeowners improved annually between 2007 and 2013, they remain depressed, the Federal Reserve Bank of New York reports. Their typical credit score is 700, compared to a 730 score for people who haven’t gone through foreclosure.

Low scores make it more difficult for people looking to buy a second home to qualify for a mortgage or get a reasonable interest rate if a lender approves them.

“There is a financial blow” for those who were foreclosed on. The New York Fed concluded.

The lingering loss is relevant today for another reason, the Fed said. The aftermath of the Great Recession is in stark contrast to what happened in the next downturn during COVID. Despite the U.S. unemployment rate rising to nearly 15 percent in 2020 as businesses close and the global economy nearly grinds to a halt.

During the pandemic, Congress protected workers by passing a generous aid package that included welfare checks, increased child tax credits, increased unemployment benefits, and the automatic renewal of Medicaid benefits. Aid went directly to the families.

During the 2008 financial crisis, Congress addressed a period of severe unemployment by extending federal unemployment benefits to workers by months. But the $500 billion bailout also went to bailing out the financial industry. The bailout saved some jobs and softened the blow from the recession, but the aid to families was not enough to prevent unprecedented levels of foreclosures.

What was different about COVID, the New York Fed said, is that the aid was able to reduce (and effectively eliminate) delinquency and prevent foreclosures during the worst months of the economic contraction in 2020.

Square off Author Kim Blanton invites you to follow us. @SquaredAwayBC on X, formerly known as Twitter. To stay current on us Blog Joining Our free email list. You’ll receive just one email each week – with links to two new posts for that week – when you Sign up here. This blog is supported by Boston College’s Center for Retirement Research.

Source link

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button