Foreclosures, House Prices Growth, and Refinancing in the COVID-19 Period

In response to the COVID-19 pandemic, Congress introduced foreclosure moratorium. We show that this moratorium stabilizes the housing market, lowers the Loan-to-value ratio (LTV) of households, reduces their refinancing costs, and increases equity extraction. We estimate that the moratorium prevented around 968,505 foreclosures filings and house price drops up to 9% of realized house prices, in the period of April through October 2020. Using loan-level data on government sponsored enterprise (GSE) mortgages originated since the onset of the pandemic, we estimate that the moratorium helps 22% of households cash out more house equity by an additional $15,371 per loan. We find that the refinancing cost is greatly reduced for 50% of the households with low credit scores, which on average save $15,500 in interest payments over the tenure of the mortgage. Our results highlight that prompt mortgage forbearance prevents foreclosure shocks from propagating and amplifying through the refinancing channel to a wide range of households.