COVID-19 Mortgage Forbearance Programs Successful in Limiting Delinquencies and Avoiding Widespread Abuses

In this new Economic Commentary, researchers Lara Loewenstein and Bezankeng Njinju provide evidence that most government-insured mortgage borrowers who used mortgage forbearance authorized by the CARES Act “did actually need it” to remain current on a mortgage. They found “that despite the ease with which homeowners were able to access forbearance, there was no broad uptake of forbearance by those who were not in need.”

To reach that conclusion, Loewenstein and Njinju looked at the points at which borrowers could have gamed the programs: by entering forbearance immediately after buying a house or after refinancing, or by maximizing the forbearance period. They found little evidence in the rates of those actions that borrowers were abusing the programs by acting strategically to gain a financial advantage.

The guarantee of mortgage forbearance provided in the CARES Act is an unprecedented provision of flexibility for government-insured mortgage borrowers. Its success thus far at limiting delinquencies during the COVID-19 pandemic without attracting misuse suggests that it might be worth exploring as a tool to aid borrowers during recessions and other periods of economic turmoil, Loewenstein and Njinju reported.

“It has the potential to benefit all parties involved, allowing the borrower and lender to avoid foreclosure, it keeps the home occupied, and it ensures that both the borrower and lender retain an interest in maintaining the home’s value,” they wrote.

Read more: Mortgage Borrowers’ Use of COVID-19 Forbearance Programs

Federal Reserve Bank of Cleveland

The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.

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Doug Campbell, doug.campbell@clev.frb.org, 513.218.1892