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Fleeting Forbearance in a World of Persistent Financial Distress

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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.

Suggested Citation

  • Kartik B. Athreya & José Mustre-del-Río & Juan M. Sánchez, 2026. "Fleeting Forbearance in a World of Persistent Financial Distress," Working Papers 2026-019, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:103742
    DOI: 10.20955/wp.2026.019
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    Keywords

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    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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