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
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