Fleeting Forbearance in a World of Persistent Financial Distress

Kartik Athreya, Jose Mustre-del-Rio and Juan Sanchez

No 2026-019, Working Papers from Federal Reserve Bank of St. Louis

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.

Keywords: delinquency; bankruptcy; forbearance; heterogeneity; impatience (search for similar items in EconPapers)
JEL-codes: D14 D84 E21 G51 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2026-09-04
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DOI: 10.20955/wp.2026.019

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