Mortgage Borrowers' Use of Covid19 Forbearance Programs

The guarantee of mortgage forbearance provided in the CARES Act is an unprecedented provision of flexibility for government-insured mortgage borrowers and has been successful thus far at limiting delinquencies during the COVID-19 pandemic. The terms of this forbearance are favorable to borrowers, and there is little required in terms of documentation of hardship, making requesting forbearance an attractive option even if borrowers are not facing hardship and do not need forbearance to remain current on a mortgage. Despite this, evidence indicates that so far CARES Act forbearance has largely been used by borrowers who did actually need it. The success of forbearance in providing households liquidity and in reducing mortgage delinquencies, and its many potential benefits relative to foreclosure in terms of aligning incentives among the borrower, lender, and neighboring homeowners, raises questions for how policymakers should approach mortgage policy during the next economic downturn and about how mortgage contracts are designed.