![]() ![]() But forbearance has never been guaranteed on such a broad scale, with such little evidence of individual hardship, 2 or for such a long period of time. Forbearance has been offered to victims of natural disasters such as hurricanes. The CARES Act is not the government’s first foray into mortgage forbearance. 1 The program has successfully limited mortgage defaults (Kim et al., 2021) and provided financial flexibility for homeowners, particularly during the early days of the pandemic when there was high unemployment and economic uncertainty. ![]() This specific extension of forbearance is easy to obtain, requiring only that borrowers verbally attest to hardship without having to provide supporting documentation, and has favorable terms in that no interest is charged on forborne balances. 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.Īt the end of March 2020, in response to the ongoing SARS-CoV-2 (COVID-19) pandemic, the United States Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which guarantees 12 months of forbearance to all borrowers of government-insured mortgages while the national declared state of emergency remained in effect. Despite this, evidence indicates that so far CARES Act forbearance has largely been used by borrowers who did actually need it. 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. 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. ![]()
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