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When Emilee Warner bought her home in Nashville, Tennessee, in 2017, she was working at a record label and making nearly six figures. His partner was also working. So buying a home with a mortgage of $ 2,100 per month at an interest rate of 4.8% was within reach.

Warner said, “$ 2,100, of course that’s a big deal for everyone. But I felt it was worth it.

Then came 2020. Warner was fired. The pandemic has struck. Then she divorced. Suddenly that mortgage payment of $ 2,100 per month seemed much more exaggerated.

When she started getting letters in the mail telling her she could refinance and lower her interest rate to 2.8%, she did some quick math and realized that it might end up reducing. his monthly payment of $ 700 to $ 900.

“Which would make a huge difference every month for me,” Warner said. When she tried to refinance, however, she learned she couldn’t – because she was unemployed.

For over a year, mortgage interest rates have been historically low, around or below 3%. Millions of homeowners took advantage of these low rates and refinanced themselves, cutting their payments, in some cases, by hundreds of dollars a month.

But many of those who could have benefited the most from lower monthly expenses – people who lost their jobs or income during the pandemic – were unable to do so because lenders typically require homeowners to be employed if they wish. refinance.

“For the typical borrower, if you’ve been unemployed since you got your original mortgage, you’re going to be pretty much left out of the market,” said Anthony DeFusco, associate professor of finance at Northwestern’s Kellogg School of Management. University.

This was not always the case, at least for homeowners who had mortgages guaranteed by the Federal Housing Administration.

“Previously, if you had an FHA mortgage and became unemployed, you were allowed to refinance,” DeFusco said.

Then the pain of the Great Recession hit – late 2008, 2009. “Things really fell apart in the mortgage market,” said John Mondragon, research advisor at the Federal Reserve Bank of San Francisco.

That’s when the FHA changed its rules and started requiring people to show proof of employment in order to refinance.

When this happened, Mondragon said, “it really seemed to push back those borrowers who were most likely to have a request for refinancing.”

Like the people who lost their jobs during the recession. Technically, the FHA requirement that people be employed to refinance lasted only a few years, but most lenders have maintained it ever since.

In a post-Great Recession study by Mondragon and DeFusco on the impact of this change, they found that back in the days when homeowners didn’t need a job to refinance, “unemployed people refinance to. rates that were around, in 2009, three to five times higher than the employee refinancing rate, ”DeFusco said.

Which means that right now there is probably a lot of pent-up demand.

With refinancing on the table, many low-income homeowners have relied on the mortgage forbearance options the federal government put in place during the pandemic.

“Being able to refinance for them would obviously also be a big help in being able to pay their monthly mortgage payments,” said Ivy Perez, policy and research manager at the Center for New York City Neighborhoods.

This is something that the San Francisco Fed’s Mondragon thinks should be on the table, because preventing the unemployed from refinancing not only hurts them – it hurts the economy as well.

“Part of the idea of ​​monetary policy is that in a recession, you lower interest rates. These interest rates are passed on to businesses so they can invest and borrowers so they can spend, ”he said.

One of the main channels for this is the mortgage market, as many people’s mortgage payments are their biggest expense.

“So borrowers not being able to access low rates when they really should be and want to… make recessions probably more painful than they should be,” Mondragon said.

It also exacerbates inequalities, as people who have money and are financially stable are able to reduce their payments, while those in difficulty cannot.

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