Intermediation Frictions in Debt Relief: Evidence from CARES Act Forbearance

Abstract

We study how intermediaries – mortgage servicers – shaped the implementation of mortgage forbearance during the COVID-19 pandemic, and use servicer-level variation to trace out the causal effect of forbearance on borrowers. Forbearance provision varied widely across servicers. Small servicers and nonbanks, and especially nonbanks with small liquidity buffers, facilitated fewer forbearances and saw a higher incidence of forbearance-related complaints. Easier access to forbearance substantially increased mortgage nonpayment but also reduced delinquencies outside of forbearance. Part of the liquidity from forbearance was used to reduce credit card debt, but most was saved or used for nondurable consumption.

Keywords: mortgage, forbearance, debt relief, CARES Act, COVID-19, liquidity

JEL Classification: G21, G23, G28