Reducing Strategic Forbearance under the CARES Act: an Experimental Approach Utilizing Recourse Attestation

Jackson T. Anderson (), David M. Harrison () and Michael Seiler ()
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Jackson T. Anderson: Claremont McKenna College
David M. Harrison: University of Central Florida

The Journal of Real Estate Finance and Economics, 2022, vol. 65, issue 2, No 3, 230-260

Abstract: Abstract The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed in response to both the global pandemic’s immediate negative and expected long-lasting impacts on the economy. Under the Act, mortgage borrowers are allowed to cease making payments if their income was negatively impacted by Covid-19. Importantly, borrowers were not required to demonstrate proof of impaction, either currently or retrospectively. Exploring the economic implications of this policy, this study uses an experimental design to first identify strategic forbearance incidence, and then to quantify where the forborne mortgage payment dollars were spent. Our results suggest strategic mortgage forbearance can be significantly reduced, saving taxpayers billions of dollars in potential losses, simply by requiring a 1-page attestation with lender recourse for borrowers wishing to engage in COVID-19 related mortgage payment cessation programs. Additionally, we demonstrate the use of these forborne mortgage payments range from enhancing the financial safety net for distressed borrowers by increasing precautionary savings, to buying necessities, to equity investing and debt consolidation.

Keywords: CARES act; COVID-19; Strategic mortgage forbearance; Experiment (search for similar items in EconPapers)
JEL-codes: D91 E63 G11 G21 G41 H81 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11146-021-09842-4

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