Intermediation Frictions in Debt Relief: Evidence from CARES Act Forbearance

You Suk Kim, Donghoon Lee, Tess C. Scharlemann and James Vickery ()
Additional contact information
You Suk Kim: https://www.federalreserve.gov/econres/you-suk-kim.htm
Tess C. Scharlemann: https://www.federalreserve.gov/econres/tess-c-scharlemann.htm

No 2022-017, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We study the role of mortgage servicers in implementing the CARES Act mortgage forbearance program during the COVID-19 pandemic. Despite universal eligibility,we document that a significant number of federally backed mortgage borrowers be-come delinquent during the pandemic without successfully entering into a forbearance program, and that the relative frequency of these "missing" forbearances varies significantly across mortgage servicers for otherwise identical loans. Forbearance out-comes are systematically related to servicer characteristics including size, liquidity and organizational form, consistent with the role of economic incentives in shaping servicer behavior. We also use servicer-level variation in forbearance outcomes to estimate the causal effect of forbearance on borrower outcomes. We find that assignment to a "high-forbearance" servicer translates to a significantly higher non-payment rate,and we find evidence that part of this additional household liquidity is used to pay down high-cost credit card debt.

Keywords: Mortgage; Forbearance; Debt relief; CARES Act; COVID-19; Liquidity (search for similar items in EconPapers)
JEL-codes: G21 G23 G28 (search for similar items in EconPapers)
Pages: 65 p.
Date: 2022-03-31
New Economics Papers: this item is included in nep-ure
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Citations: View citations in EconPapers (2)

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https://www.federalreserve.gov/econres/feds/files/2022017pap.pdf (application/pdf)

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Working Paper: Intermediation Frictions in Debt Relief: Evidence from CARES Act Forbearance (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2022-17

DOI: 10.17016/FEDS.2022.017

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