Research says liquid reserves could help more families keep homes

Living Cities-funded research from the Urban Institute argues that short-term cash reserves could help first-time and first-generation homeowners handle shocks before they fall behind on mortgages. The findings focus on households of color and could shape new policy and financial products aimed at sustaining homeownership, not just expanding access to it.

Why it matters: - Homeownership can build wealth only if families can keep up with mortgage payments after closing. - The research says limited savings can leave new homeowners exposed to income loss or surprise expenses. - Households of color face a bigger risk because they are more likely to be first-time or first-generation buyers and have less access to inherited wealth. - Short-term liquidity could help more families stay in their homes and reduce the chance of foreclosure or other distress.

What happened: - Living Cities funded new research by Urban Institute housing finance researchers on how liquid reserves could support homeownership stability. - The brief is titled Building Liquid Reserves to Strengthen Homeownership for Households of Color: A Path Forward for Innovation. - Authors are Janneke Ratcliffe, Katie Visalli and Rita Ballesteros. - Living Cities said the work will inform broader efforts to identify capital and policy solutions that help families sustain ownership and build wealth over time.

The details: - The research examines how homebuying costs can leave families with too little savings to absorb financial shocks. - It finds that access to short-term liquidity could help homeowners cover unexpected expenses or temporary income disruptions before their mortgages are at risk. - Mortgage payment reserves could help first-time and first-generation homeowners with limited wealth and savings. - Those reserves could also reduce lender risk and potentially widen access to mortgage credit. - Existing loss-mitigation tools do not reach every borrower who needs them. - Additional funds could help homeowners manage financial disruptions and remain in their homes. - Mortgage reserve accounts and similar tools show promise. - The industry and regulators are showing growing interest in those tools, but more testing and research are needed to learn how to scale them. - Joe Scantlebury, president and CEO of Living Cities, said ownership is not the same as durable ownership and that families need financial resilience after closing. - Michael Neal, who leads Urban’s housing finance practice area, said the research could inform continued innovation and testing across the housing finance system. - The research specifically highlights households of color because of historic gaps in access to intergenerational wealth for down payments and emergency expenses.

Between the lines: - The research shifts the homeownership conversation from getting families into homes to helping them keep them. - That matters because a home can become a financial risk instead of a wealth-building asset when savings are thin. - The emphasis on liquidity suggests policy and product design may be as important as mortgage access in closing ownership gaps. - The work also signals interest in tools that sit between traditional underwriting and post-purchase hardship relief.

What's next: - Living Cities will use the research in work with financial institutions, housing leaders, policymakers and other partners. - The organization plans to explore and test approaches that strengthen household liquidity. - The goal is to help families sustain homeownership as part of long-term wealth building and economic mobility. - More research and testing are still needed to determine how reserve accounts and similar products can be expanded effectively. - More information is available in the organization's announcement.