Fleeting Forbearance in a World of Persistent Financial Distress

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RWP 26-13, September 2026

In the United States, households often delay payments on unsecured debt for extended periods. These delinquencies are costly and can be a useful indicator of financial distress. Mortgage forbearance, a form of payment delay, saw swift but fleeting take-up early in the COVID-19 pandemic. Despite generous terms, most borrowers exited quickly. 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. Mortgage forbearance primarily attracted financially healthier homeowners, while anticipated income losses failed to materialize.

JEL classifications: D14, D84, E21, G51.