Working Paper
Fleeting Forbearance in a World of Persistent Financial Distress
Abstract: CORRECT ORDER OF AUTHORS: Mustre-del-Río, Sánchez, Athreya. In the US, households often delay payments on unsecured debt for extended periods. These delinquencies are costly, making them a useful indicator of financial distress. Mortgage forbearance, another form of payment delay, saw swift take-up early in the COVID-19 pandemic, but was fleeting. Most borrowers exited quickly despite generous terms. This paper reconciles these seemingly contradictory payment postponement patterns using a life-cycle model of mortgages and unsecured debt. Combining survey evidence with credit history data, our model resolves these facts through selection and expected income losses. Forbearance primarily attracted financially healthier homeowners, while anticipated income losses failed to materialize.
JEL Classification: D14; D84; E21; G51;
https://doi.org/10.20955/wp.2026.019
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https://doi.org/10.20955/wp.2026.019
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Bibliographic Information
Provider: Federal Reserve Bank of St. Louis
Part of Series: Working Papers
Publication Date: 2026-09-04
Number: 2026-019