Fleeting Forbearance in a World of Persistent Financial Distress

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Staff Reports

Fleeting Forbearance in a World of Persistent Financial Distress

Number 1207
October 2026

JEL classification: D14, D84, E21, G51

Authors: José Mustre-del-Río, Juan M. Sánchez, and Kartik B. 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.

Full Article

Author Disclosure Statement(s)

José Mustre-del-Río
The author, Jose Mustre-del-Rio, declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports.

Juan M. Sánchez
The author, Juan Sanchez, declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports.

Kartik Athreya
The author, Kartik Athreya, declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports.

Suggested Citation:
Mustre-del-Río, José, Juan M. Sánchez, and Kartik Athreya. 2026. “Fleeting Forbearance in a World of Persistent Financial Distress.” Federal Reserve Bank of New York Staff Reports, no. 1207, October. https://doi.org/10.59576/sr.1207

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