Government-Sponsored Enterprise (GSE) Financing Can Affect Tenants’ Risk of Eviction

A paper released in December 2020, “Eviction Risk of Rental Housing: Does it Matter How Your Landlord Finances the Property?,” examines the extent to which different types of home loans affect landlords’ decisions to evict tenants for non-payment of rent. The researchers find that counties with a higher proportion of rental properties financed by a government-sponsored enterprise (GSE) experience lower eviction rates than counties with smaller proportions of GSE-financed homes. The researchers also find that GSE financing may reduce the number of potential evictions in the absence of a federal eviction moratorium.

The study is premised on the hypothesis that non-payment of rent can cause financial shocks for property owners, potentially causing them to fall behind on mortgage payments. Different types of loans and underwriting criteria may provide property owners relief when they experience these income shocks. Specifically, GSE-financed loans generally have smaller loan amounts and interest rates, resulting in a lower debt service, compared to non-GSE loans. As a result, a landlord with a non-GSE loan may feel more pressure to immediately evict and replace a tenant to recoup the income and make a mortgage payment.

To test their hypothesis, the researchers used eviction data from Princeton’s Eviction Lab and multifamily loan data from Trepp to estimate differential eviction rates across loan types for 1,111 counties.

Based on an analysis of evictions from January 2001 to December 2016, the researchers estimate an average eviction rate of 2.98 per 100 renter households across the full sample. County eviction rates decrease, however, as the share of GSE-funded mortgages increases. Counties with less than 20% GSE-financed multifamily properties have an average eviction rate of 2.91, while counties with at least 80% GSE-financed multifamily properties have an average eviction rate of 2.51. This represents a 13.7% difference in eviction rates for counties with the lowest and highest proportions of GSE-backed loans.

The researchers also estimate how the number of evictions during COVID-19 would differ if national eviction moratoria had not been enacted. Using data from 12 cities tracked by the Eviction Lab, the researchers predict that evictions would have been 20.4% higher in the absence of any GSE financed mortgages due to stricter underwriting standards. The federal moratoria diminished the influence of GSE financing on reducing evictions, however, by restricting evictions in most rental properties.

The majority of research on eviction and prevention has focused on rental market factors. This research provides a new lens for understanding eviction by examining the role of mortgage financing options. These findings demonstrate how GSE loans from Fannie Mae, Freddie Mac, and Ginnie Mae can impact housing stability and tenant outcomes.

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