The importance of savings has long been established: having an emergency savings cushion can help families weather emergencies and unexpected expenses and even a small amount of savings can help households manage stress and get ahead. However, data shows that 40% of Americans are liquid asset poor—meaning those families don’t have enough in savings to make ends meet at the poverty level for three months if their income was interrupted. This problem is even starker when disaggregated by race: 31.7% of White households are liquid asset poor compared to over 62% of Latino and Black households.
For many low-and-moderate income households in the United States, buying a home is building upon a foundation of financial security to begin to create wealth. Given that most homeowners finance their home purchase with a mortgage, buying a home is also one of their largest sources of debt, presenting significant risk. According to Harvard University’s Joint Center for Housing Studies' 2019 State of the Nation’s Housing report, 17.3 million homeowners are cost burdened. Cost-burdened homeowners in the bottom income quartile spend significantly less on food, health care, transportation and retirement savings than other families in their income bracket whose housing is affordable.
Research studying thousands of homeowners in recent years, has found that increased short-term liquidity was a key factor driving mortgage default and that default followed shortly after a negative income shock regardless of the borrower’s income level, mortgage payment amount or the amount left on the loan.
Under this premise, Prosperity Now launched HomeReserve, a mortgage-match savings initiative to help homeowners at 80% AMI or below, who have purchased a home within the last two years save 1-3 months of their mortgage amount, including the match funds. The primary goal of HomeReserve is to reduce mortgage default in low to moderate income homeowners. This is accomplished through increasing their savings through incentivizing repetitive long-term saving habits and coupled with financial capability services targeted to low and moderate income homeowners to help them grow savings and maintain homeownership.
Through the support of JPMorgan Chase, Prosperity Now is launching its second iteration of HomeReserve.