Efforts to close the persistent and detrimental Black-white homeownership gap, which is currently at 30 percentage points, must include not only measures to decrease the barriers to Black homeownership opportunity, but also mechanisms to ensure that homeownership is sustainable once achieved.

Mortgage reserve accounts are among the innovative solutions that could help homeowners overcome temporary hardships and get back on track with their mortgage payments, instead of falling into foreclosure, according to a new report from the Federal Home Loan Bank of San Francisco (FHLBank San Francisco) and the Urban Institute.

The new comprehensive report from the Racial Equity Accelerator for Homeownership examines a variety of new product structures aimed at supporting homeowners who experience temporary financial hardship, with a particular focus on how mortgage reserve accounts could help homeowners avoid default. This solution would disproportionately benefit Black families, who are more than twice as likely as white families to lose their home to foreclosure.

Recent research indicates that the greatest number of defaults are caused by shocks such as unexpected expenses (64%); job loss (56%); large debt payments (44%); or illness, disability, or death (43%); and that Black homeowners are more vulnerable to all these shocks due to their generally lower levels of liquid assets, more precarious employment, larger debt-to-income ratios, greater medical debt, and higher cost of homeownership.

The long history of reduced access to wealth-building opportunities, that Black households have experienced means they have less financial cushion to fall back on in the event of a financial shock; in contrast, the typical white family has eight times the wealth of the typical Black family.

“Efforts to promote Black homeownership and narrow the Black-white wealth gap are undermined when homeownership is not sustained,” said Janneke Ratcliffe, VP of the Housing Finance Policy Center at the Urban Institute. “For this reason, we need to redouble our efforts to develop effective ways to give homeowners breathing room so that a financial rough patch does not lead to losing a home.”

“The housing finance industry has created a robust foreclosure prevention toolkit over the past 15 years, but there’s still significant room for improvement, and we need to pursue multiple new avenues to reduce the risk of default. These financial tools, designed to help families keep their homes and build generational wealth, would also make mortgages less risky for lenders, insurers, and investors,” said Teresa Bryce Bazemore, President and CEO of FHLBank San Francisco. “Our joint research with the Urban Institute has identified a number of promising ways to help close the racial gap in homeownership and wealth building. This latest report highlights the potential of mortgage reserve accounts, and we welcome the opportunity to further explore this type of solution.”

The report, Using Mortgage Reserves to Advance Black Homeownership, explores solutions that have been proposed or could be enhanced to sustain homeownership, particularly in addressing shocks that hit Black homeowners harder than others. These solutions, which range from tried-and-tested approaches to still-undeveloped ideas, fall into three broad categories: enhanced foreclosure prevention (e.g., forbearance programs, loan modification), insurance (e.g., mortgage protection insurance, home warranty insurance, mortgage insurance that protects the borrower rather than the lender, a borrowers mutual insurance fund), and dedicated reserve accounts.

While all these tools have potential and many could work together, this report focuses on the mortgage reserve account, a savings account tied to an individual mortgage and funded by reducing the down payment. If borrowers experience an income shock or an unexpected expense, they typically use the account to cover mortgage payments.

Several mortgage reserve models have been developed and tested, some of which—such as the Prosperity Now pilot program and the Self-Help credit union network’s Savings Account for Emergencies program—include matched savings to encourage participation. Mortgage reserve account programs are also being explored as part of the Equitable Housing Finance Plans. Research suggests that such accounts mitigate foreclosures by providing emergency savings for borrowers to draw on if needed.

The authors of Using Mortgage Reserves to Advance Black Homeownership analyze default rates and loss severities on loans and determine that reserves improve performance, even on mortgages with higher loan-to-value ratios, and reduce overall losses, even though severities are higher. However, reserve accounts do involve trade-offs for both homeowners and lenders, and more study and testing are needed to determine the optimum amount and duration of reserves and the conditions under which the reserves can be used, as well as to answer more detailed operational questions. The authors outline a blueprint for piloting a mortgage reserve account program that could generate a critical mass of evidence to inform further product development.

This report is the third in a series of four developed through a two-year, $1.5 million collaboration between the Urban Institute and FHLBank San Francisco. Previous reports examined incorporating alternative data into mortgage underwriting and mitigating the impact of student debt on Black homeownership. Future research will address using artificial intelligence and other new technologies to overcome historical mortgage lending biases.

To read the full report, including more data, charts, and methodology, click here.

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Mortgage Reserve Accounts Aimed at Averting Foreclosure Could Help Narrow Black-White Homeownership Gap

SAN FRANCISCO and WASHINGTON, June 22, 2023 (GLOBE NEWSWIRE) — Efforts to close the persistent and detrimental Black-white homeownership gap, currently at 30 percentage points, must include not only measures to decrease the barriers to Black homeownership opportunity, but also mechanisms to ensure that homeownership is sustainable once achieved. Mortgage reserve accounts are among the innovative solutions that could help homeowners overcome temporary hardships and get back on track with their mortgage payments, instead of falling into foreclosure.

A comprehensive

new report

from the

Racial Equity Accelerator for Homeownership

— a collaboration of Federal Home Loan Bank of San Francisco (FHLBank San Francisco) and the Urban Institute — examines a variety of new product structures aimed at supporting homeowners who experience temporary financial hardship, with a particular focus on how mortgage reserve accounts could help homeowners avoid default. This solution would disproportionately benefit Black families, who are more than twice as likely as white families to lose their home to foreclosure.

Recent

research

indicates that the greatest number of defaults are caused by shocks such as unexpected expenses (64%); job loss (56%); large debt payments (44%); or illness, disability, or death (43%), and that Black homeowners are more vulnerable to all these shocks due to their generally lower levels of liquid assets, more precarious employment, larger debt-to-income ratios, greater medical debt, and higher cost of homeownership. The long history of reduced access to wealth-building opportunities, that Black households have experienced means they have less financial cushion to fall back on in the event of a financial shock; in contrast, the typical white family has

eight times

the wealth of the typical Black family.

“Efforts to promote Black homeownership and narrow the Black-white wealth gap are undermined when homeownership is not sustained,” said Janneke Ratcliffe, vice president of the Housing Finance Policy Center at the Urban Institute. “For this reason, we need to redouble our efforts to develop effective ways to give homeowners breathing room so that a financial rough patch does not lead to losing a home.”

“The housing finance industry has created a robust foreclosure prevention toolkit over the past 15 years, but there’s still significant room for improvement, and we need to pursue multiple new avenues to reduce the risk of default. These financial tools, designed to help families keep their homes and build generational wealth, would also make mortgages less risky for lenders, insurers, and investors,” said Teresa Bryce Bazemore, president and CEO of FHLBank San Francisco. “Our joint research with the Urban Institute has identified a number of promising ways to help close the racial gap in homeownership and wealth building. This latest report highlights the potential of mortgage reserve accounts, and we welcome the opportunity to further explore this type of solution.”

The report,

Using Mortgage Reserves to Advance Black Homeownership

, explores solutions that have been proposed or could be enhanced to sustain homeownership, particularly in addressing shocks that hit Black homeowners harder than others. These solutions, which range from tried-and-tested approaches to still-undeveloped ideas, fall into three broad categories: enhanced foreclosure prevention (e.g., forbearance programs, loan modification), insurance (e.g., mortgage protection insurance, home warranty insurance, mortgage insurance that protects the borrower rather than the lender, a borrowers mutual insurance fund), and dedicated reserve accounts.

While all these tools have potential and many could work together, this report focuses on the mortgage reserve account, a savings account tied to an individual mortgage and funded by reducing the downpayment. If borrowers experience an income shock or an unexpected expense, they typically use the account to cover mortgage payments.

Several mortgage reserve models have been developed and tested, some of which — such as the Prosperity Now pilot program and the Self-Help credit union network’s Savings Account for Emergencies program — include matched savings to encourage participation. Mortgage reserve account programs are also being explored as part of the Equitable Housing Finance Plans. Research suggests that such accounts mitigate foreclosures by providing emergency savings for borrowers to draw on if needed.

The authors of

Using Mortgage Reserves to Advance Black Homeownership

analyze default rates and loss severities on loans and determine that reserves improve performance, even on mortgages with higher loan-to-value ratios, and reduce overall losses, even though severities are higher. However, reserve accounts do involve trade-offs for both homeowners and lenders, and more study and testing are needed to determine the optimum amount and duration of reserves and the conditions under which the reserves can be used, as well as to answer more detailed operational questions. The authors outline a blueprint for piloting a mortgage reserve account program that could generate a critical mass of evidence to inform further product development.

This report is the third in a series of four developed through a two-year, $1.5 million collaboration between the Urban Institute and FHLBank San Francisco. Previous reports examined incorporating alternative data into mortgage underwriting and mitigating the impact of student debt on Black homeownership. Future research will address using artificial intelligence and other new technologies to overcome historical mortgage lending biases.

About the Federal Home Loan Bank of San Francisco


The Federal Home Loan Bank of San Francisco is a member-driven cooperative helping local lenders in Arizona, California, and Nevada build strong communities, create opportunity, and change lives for the better. The tools and resources we provide to our member financial institutions — commercial banks, credit unions, industrial loan companies, savings institutions, insurance companies, and community development financial institutions — propel homeownership, finance quality affordable housing, boost economic vitality, and revitalize whole neighborhoods. Together with our members and other partners, we are making the communities we serve more vibrant, equitable, and resilient and changing lives for the better.

About the Urban Institute


The nonprofit Urban Institute is a leading research organization dedicated to developing evidence-based insights that improve people’s lives and strengthen communities. For 50 years, Urban has been the trusted source for rigorous analysis of complex social and economic issues; strategic advice to policymakers, philanthropists, and practitioners; and new, promising ideas that expand opportunities for all. Our work inspires effective decisions that advance fairness and enhance the well-being of people and places.

Source: FHLBank San Francisco and Urban Institute

Media Contacts:
Mary Long
Senior Director, Marketing Communications
longm@fhlbsf.com
415.616.2556

DeQuendre Bertrand
Communications Director, Urban Institute Housing Finance Policy Center
HFPCPress@urban.org
202-261-5958

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Nearly seven months after the first debit cards were issued for the Middle Class Tax Refund, KCRA 3 is continuing to be contacted by Californians having problems getting access to their money and connecting with a real person on Money Network call lines to resolve their disputes. The MCTR program, which Gov. Gavin Newsom first announced as “inflation relief” payments, has distributed $9.2 billion to nearly 32 million California taxpayers either via direct deposit or by mailing debit cards. Of 9.6 million debit cards that have been issued, about 15% have yet to be activated as of May 6. Just 36% of cards have a zero balance. | VIDEO BELOW | Middle Class Tax Refund: What is Money Network and why did California hire them for debit cards?At issue for those who have contacted us have been problems with the debit cards from those who said they either didn’t receive the cards or, in some cases, reported their money was spent by fraudsters. Consider the case of Susan Otten in Santa Barbara County. She said that she was entitled to $350 on a debit card and shared screenshots of her account showing that just $78 remain. That’s because someone else spent the rest of the money before she could, she said. Otten first noticed this when she went to activate her card, and her online account showed a charge from Panda Express and a Tilly’s, as well as three purchases at a Ross store – all over a two-day span in January at Southern California locations where she doesn’t live or shop. She said she called the Money Network support line, was sent a second card and was told that her money would be returned, though some of the charges were pending. After receiving her second card in March, she said she waited a month before checking her account again, hoping that the charges would have been resolved. This time her account showed someone else took out nearly $200 at an ATM in another city. So far, just two of the fake charges have been reversed, she said. Otten said she managed through the Money Network helpline to be issued a third card, which she expects to arrive soon. But she has failed at being able to dispute the remaining charges and says she hasn’t been able to speak to a real person about her case recently. “I have no other recourse and have no idea where to go from here,” she said, adding that she is “furious.” Asked about the issue, a Franchise Tax Board spokesperson confirmed to KCRA 3 that one of two helplines, the “customer support” line (800-542-9332), has been converted to be fully automated as of April 21. “This line offers information about qualifications, how you may receive your payment, and other MCTR information. It includes an option for customers to be redirected to the Money Network debit card activation line if that is the reason the customer is calling,” spokesperson Andrew LePage said. He said that the viewer should continue to work with Money Network to resolve her dispute. That leaves the debit activation line, listed on the FTB’s website as the “Debit card questions” line (800-240-0223). This line is still staffed with live agents during business hours for customers who need help that isn’t handled by the self-service option, he said. But when KCRA 3 called the activation line and followed prompts to report fraud, at least one path in the maze of voice prompts led to the call being disconnected. “We encourage debit card customers to listen to the prompts and choose the option that will meet their needs,” LePage said. “Many items that debit card customers need assistance with are automated and don’t require a customer service agent. Where necessary, customers will be connected with agents to assist with their questions.” He said that 95% of calls are able to be handled by self-service options. Otten said she is worried that when her new card arrives, it will still have bogus charges associated with her account. She’s not the only viewer to reach out to us with fraud concerns, though the Franchise Tax Board has said there is no evidence of widespread fraud. The FTB’s contract with Money Network requires a fraud prevention rate of at least 99%.| VIDEO BELOW | Middle Class Tax Refund: What to know about fraud issuesThe agency won’t say what the rate of fraud has been so far with the program, saying only, “Money Network continues to meet the terms of the contract.”Meanwhile, another viewer who reached out to us, Ken, in Santa Cruz County, said he’s been trying to reach a live person because he never received his debit card. He said he’s even tried to get help from two legislative assistants, with one offering an unlisted phone number but warning that he could still be on hold for more than an hour. He said he hung up after 50 minutes when no one answered. “It really is little wonder people hate government,” he said.More MCTR resources FTB Middle Class Tax Refund help page Money Network’s Middle Class Tax Refund pagePhone number to call if your card is lost or stolen: 800-240-0223

Nearly seven months after the first debit cards were issued for the Middle Class Tax Refund, KCRA 3 is continuing to be contacted by Californians having problems getting access to their money and connecting with a real person on Money Network call lines to resolve their disputes.

The MCTR program, which Gov. Gavin Newsom first announced as “inflation relief” payments, has distributed $9.2 billion to nearly 32 million California taxpayers either via direct deposit or by mailing debit cards.

Of 9.6 million debit cards that have been issued, about 15% have yet to be activated as of May 6. Just 36% of cards have a zero balance.

| VIDEO BELOW | Middle Class Tax Refund: What is Money Network and why did California hire them for debit cards?

At issue for those who have contacted us have been problems with the debit cards from those who said they either didn’t receive the cards or, in some cases, reported their money was spent by fraudsters.

Consider the case of Susan Otten in Santa Barbara County. She said that she was entitled to $350 on a debit card and shared screenshots of her account showing that just $78 remain.

That’s because someone else spent the rest of the money before she could, she said. Otten first noticed this when she went to activate her card, and her online account showed a charge from Panda Express and a Tilly’s, as well as three purchases at a Ross store – all over a two-day span in January at Southern California locations where she doesn’t live or shop.

She said she called the Money Network support line, was sent a second card and was told that her money would be returned, though some of the charges were pending.

After receiving her second card in March, she said she waited a month before checking her account again, hoping that the charges would have been resolved. This time her account showed someone else took out nearly $200 at an ATM in another city.

So far, just two of the fake charges have been reversed, she said.

Otten said she managed through the Money Network helpline to be issued a third card, which she expects to arrive soon. But she has failed at being able to dispute the remaining charges and says she hasn’t been able to speak to a real person about her case recently.

“I have no other recourse and have no idea where to go from here,” she said, adding that she is “furious.”

Asked about the issue, a Franchise Tax Board spokesperson confirmed to KCRA 3 that one of two helplines, the “customer support” line (800-542-9332), has been converted to be fully automated as of April 21.

“This line offers information about qualifications, how you may receive your payment, and other MCTR information. It includes an option for customers to be redirected to the Money Network debit card activation line if that is the reason the customer is calling,” spokesperson Andrew LePage said.

He said that the viewer should continue to work with Money Network to resolve her dispute.

That leaves the debit activation line, listed on the FTB’s website as the “Debit card questions” line (800-240-0223). This line is still staffed with live agents during business hours for customers who need help that isn’t handled by the self-service option, he said.

But when KCRA 3 called the activation line and followed prompts to report fraud, at least one path in the maze of voice prompts led to the call being disconnected.

“We encourage debit card customers to listen to the prompts and choose the option that will meet their needs,” LePage said. “Many items that debit card customers need assistance with are automated and don’t require a customer service agent. Where necessary, customers will be connected with agents to assist with their questions.”

He said that 95% of calls are able to be handled by self-service options.

Otten said she is worried that when her new card arrives, it will still have bogus charges associated with her account.

She’s not the only viewer to reach out to us with fraud concerns, though the Franchise Tax Board has said there is no evidence of widespread fraud.

The FTB’s contract with Money Network requires a fraud prevention rate of at least 99%.

| VIDEO BELOW | Middle Class Tax Refund: What to know about fraud issues

The agency won’t say what the rate of fraud has been so far with the program, saying only, “Money Network continues to meet the terms of the contract.”

Meanwhile, another viewer who reached out to us, Ken, in Santa Cruz County, said he’s been trying to reach a live person because he never received his debit card. He said he’s even tried to get help from two legislative assistants, with one offering an unlisted phone number but warning that he could still be on hold for more than an hour.

He said he hung up after 50 minutes when no one answered.

“It really is little wonder people hate government,” he said.

More MCTR resources

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