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. Relative to the persistent delinquency typically observed in consumer credit, mortgage forbearance during the COVID-19 pandemic was surprisingly short-lived. To understand why, we develop a rich structural model and estimate it on credit panel microdata. Next, using the model and survey data, we identify key roles for both selection into mortgages by relatively patient households and the failure of anticipated income losses to materialize. Even taking selection in account, had losses occurred, forbearance participation would have been persistent. Thus, the power of forbearance, a frequent macroeconomic policy, hinges on borrower selection, shock realizations, and revisions to expectations following those realizations.

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: 54 pages
Date: 2026-09-04, Revised 2026-09-28
New Economics Papers: this item is included in nep-dge
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Working Paper: Fleeting Forbearance in a World of Persistent Financial Distress (2026)
Working Paper: Fleeting Forbearance in a World of Persistent Financial Distress (2026)
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DOI: 10.20955/wp.2026.019

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