Mortgage Forbearance and Financial Distress in the Long Run
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Mortgage relief programs are crucial for distressed households during economic downturns, but their long-term effects remain underexplored. This paper offers new micro-level evidence on the long-term efficacy of mortgage payment pauses, or forbearance, in mitigating financial distress during and after the COVID-19 pandemic. Using data from 500,000 consumer credit reports, I study the causal effects of mortgage forbearance under the Coronavirus Aid, Relief, and Economic Security (CARES) Act on household financial stability. Leveraging quasi-random variation in mortgage servicers’ forbearance provision, I identify significant reductions in mortgage delinquency rates—up to 5 percentage points—and foreclosure rates by 1 percentage point, persisting three years post-forbearance. Additionally, the program had beneficial spillover effects on revolving credit stability, reducing credit card delinquencies by 2 percentage points and utilization rates by roughly 15 percentage points relative to the pre-pandemic period. Upon exiting forbearance, borrowers not only avoided financial ‘rebound effects,’ but also sustained improved financial stability for more than two years following the policy’s implementation.