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August 27, 2020

Economic Impact of COVID-19
Special Report: Mortgage and Student Loan Forbearance
During the COVID-19 Pandemic
By Emily Wavering Corcoran and Nicholas Haltom
In addition to direct financial supports for
consumers — including unemployment insurance and economic impact payments — federal
and state governments and individual financial
institutions have enacted forbearance policies in
response to the COVID-19 pandemic.1 Forbearance is a special arrangement that allows borrowers to suspend loan payments for a set period
of time. The forbearance policies enacted by the
federal government through the coronavirus relief bill (commonly referred to as the CARES Act)

addressed two consumer credit products: mortgages and student loans.2 Mortgage debt and
student loan debt rank as the number one and
two largest categories of outstanding household
debt, respectively. According to data from the
New York Fed Consumer Credit Panel (CCP), in
the second quarter of this year, there was $14.27
trillion in total household debt — 69 percent of
that balance was mortgage debt, while 11 percent was student loans. (See Figure 1.)3

Figure 1: Total Debt Balance and its Composition
16
14

Trillions of Dollars

12
10
8
6
4
2
0

Mortgage

HE Revolving

Auto Loan

Credit Card

Student Loan

Other

Source: New York Fed Consumer Credit Panel/Equifax

August 2020 – Richmond Fed

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Current forbearance programs are intended to help
individual households, loan servicers, and the overall
economy. Forbearance helps households maintain financial security by supporting their ability to allocate
spending toward things they need now and to avoid
delinquency or default. It also helps prevent hits to
their credit score. Forbearance helps loan servicers
mitigate losses that would occur through more costly
default. On a large scale, helping tens of millions
of households reallocate their spending from debt
service to current consumption of goods and services directly supports current economic activity.
Forbearance also prevents a potential sudden and
widespread wave of defaults that could have severe
negative effects on the economy overall.
Still, forbearance only provides short-term relief, and
the debt must be reckoned with at some point in the
future. While forbearance can be highly effective at
preventing serious delinquency in the short term,
the COVID-19 pandemic may present a much longerterm challenge for both borrowers and servicers.
Mortgage and student loan borrowers may face
economic hardship and uncertainty that last well beyond the forbearance term, while mortgage servicers
may face liquidity strains as they simultaneously provide relief to their customers and fulfill their payment
obligations to investors. This special report aims to
contextualize the existing forbearance programs by
discussing (1) how the CARES Act forbearance programs are currently designed; (2) how mortgage and
student loan borrowers were faring pre-COVID-19;
and (3) what the financial future of households and
servicers might look like as the programs continue
and end.
How Are CARES Act Forbearance Policies
Designed?
The CARES Act, which became a law on March 27,
establishes mortgage and student loan forbearance
programs that are designed to provide substantial
support and minimal administrative burden to borrowers. While a mortgage or student loan borrower
is in forbearance under the CARES Act, their loan servicer cannot charge any additional fees, penalties or
interest, and they cannot report missed payments to
the credit bureaus. Although the CARES Act does not
specify repayment terms, federal guidance prohibits

servicers from requiring customers to pay the
full balance of missed payments as soon as their
forbearance period ends (also known as “lump
sum” or “balloon” payments). Instead, servicers
should ensure borrowers know all of their repayment options.
CARES Act mortgage forbearance eligibility
extends to all borrowers with a federally-backed
mortgage — that is, a mortgage insured, purchased, and/or securitized by a federal entity,
such as the Federal Housing Administration
(FHA), the Department of Veterans Affairs (VA),
Fannie Mae, or Freddie Mac. This covers approximately 70 percent ($7 trillion) of single-family
home mortgages.4 The CARES Act makes these
borrowers eligible for forbearance if they submit
a request to their loan servicer and affirm that
they are experiencing economic hardship that is
directly or indirectly linked to the COVID-19 pandemic. No additional documentation is required.
The CARES Act guarantees an initial forbearance
period of 180 days and allows borrowers to request an additional 180-day extension.
Notably, the CARES Act did not provide specific
support for mortgage servicers, but support
has emerged since its passage. Support was of
particular concern to nonbank servicers, which
did not have access to the same liquidity facilities
as banks. As a general rule, mortgage servicers
are required to advance principal and interest
payments even when those payments are missed
due to forbearance. When forbearance is short
and targeted, this is not a problem because mortgage servicers — even those that are nonbank
servicers — typically have enough capital on
hand to cover the shortfall and still make good
on their required obligations. But current mortgage forbearance was expected to be potentially
widespread. Consequently, Fannie Mae and Freddie Mac have put a four-month cap on servicers’
obligations to deliver missed payments. And Ginnie Mae, which guarantees payments to investors
in mortgage-backed securities (MBS) backed
by FHA, VA, and other federally guaranteed or
insured loans, created a lending facility that servicers can access to cover payment obligations.
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Of course, an economic downturn affects more than
just homeowners and mortgage servicers. Renters
are similarly vulnerable. Although a full examination
of COVID-19 rental housing support falls outside of
the scope of this publication, a range of federal, state,
and local policies were enacted to help renters stay
in their homes, including eviction moratoriums and
rent relief.5 Additionally, like single-family homeowners, landlords with federally-backed mortgages are
eligible for CARES Act forbearance (originally a 90day period that was extended by another 90 days).
Participating landlords may not evict tenants for
financial hardship through their forbearance term.
Still, some research suggests that more support is
needed, and there are concerns about renter housing
stability once eviction moratoriums are lifted.6
Turning to forbearance policy for student loans, relief
for borrowers has been even more automatic than
for mortgages. The federal government is the primary provider of student loans in the country, and the
CARES Act automatically places all federal student
loans owned by the Department of Education (ED) in
administrative forbearance at 0 percent interest from
March 13 to September 30. Borrowers do not have to
request relief based on financial hardship. Prior to the
passage of the CARES Act, about 88 percent ($1.340
trillion) of total outstanding federal student loans
were ED-owned, covering 42 million borrowers.7
Student loans that were excluded from automatic
forbearance include Federal Family Education Loan
(FFEL) Program loans owned by commercial lenders
and Federal Perkins Loans held by schools (which
combined make up the remaining 12 percent of
outstanding federal student loans), plus about $120
billion in outstanding private loans made by financial
institutions, state agencies, or schools.8
Do borrowers without a federally-backed mortgage
or ED-owned student loan have relief options? The
short answer is: maybe. Federal and state financial
regulators issued a joint statement in April that
broadly encourages mortgage servicers to be flexible when responding to customer requests and
assures financial institutions that they will not face
enforcement actions as they respond to mortgage-

borrower requests.9 Although forbearance is not
guaranteed, a number of mortgage servicers
have announced that forbearance or other relief
programs are available to those impacted by the
COVID-19 pandemic.10 Similarly, many student
loan servicers are offering short-term relief to
borrowers, but the terms vary, and borrowers
must contact the loan servicer to request relief.
Some states, including Virginia, have supported
this process by entering into a formal agreement
with student loan servicers to give state residents relief for loans that were excluded from the
CARES Act.11
How Were Borrowers Faring Prior to the
Pandemic?
Attention is starting to turn to the question of
borrowers’ ability to service their debt after forbearance ends. One way to gain insight into the
future is to look at how borrowers were faring
before the pandemic hit. For broad context, it’s
worth noting that mortgage holders are in general economically advantaged relative to student loan holders. For example, data from the
Federal Reserve’s Survey of Consumer Finances
show that families with mortgages tend to
have much higher net worth than families with
student loans.12 In this section we look specifically at the issue of borrowers’ ability to make
their payments by examining the prevalence of
mortgage and student loan delinquency and
forbearance prior to COVID-19.
Prior to the pandemic, indicators of borrowers’
ability to stay current on their payments varied
significantly between mortgages and student
loans. In the last quarter of 2019, serious mortgage delinquency — defined in the New York
Fed’s Quarterly Report on Household Debt and
Credit as the percent of outstanding debt that
was 90 days or more past due (including default) — was quite low at 1.1 percent. By contrast, serious student loan delinquency was 11.1
percent.

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As shown in Figure 2, delinquency rates have long
diverged between mortgages and student loans.
Mortgage delinquency surged during the Great Recession but has otherwise been relatively low and
has decreased over time. Alternatively, student loan
delinquency is relatively high and has increased
over time.

Mortgage delinquencies spiked during the Great
Recession and trended downward as the economy recovered. Since the recovery, lending standards have tightened, house price growth has
been positive and relatively stable, and mortgage
debt service payments as a percentage of disposable income have fallen to their lowest level in 40
years.13

Figure 2: Percent of Balance 90+ Days Delinquent by Loan Type
16
14
12
10
8
6
4
2
0

Mortgage

HE Revolving

Auto Loan

Credit Card

Student Loan

Source: New York Fed Consumer Credit Panel/Equifax

Several factors help explain these pre-pandemic
level and trend differences. In the mortgage market,
credit terms are tailored to individual borrowers and
reflect, among other considerations, the value of
the house being acquired. But federal student loan
borrowing limits and interest rates are generally
uniform and disconnected from an assessment of a
student’s ability to repay. In addition, mortgage loans
are secured by real property, while student loans are
unsecured and fund intangible human capital (i.e.,
knowledge and skills). If a mortgage borrower gets
into significant financial trouble, debt relief may be
available through modifying the loan, parting with
the home, or seeking relief through the bankruptcy
process. Student loan borrowers may be eligible to
pause or reduce payments, but they cannot sell their
human capital like other assets, and in most cases,
they cannot discharge their loans in bankruptcy.

By contrast, student loan delinquency has
remained elevated in the post-Great Recession
period. Part of this is explained by a portion of
large student loan balances that are delinquent;
a small number of borrowers have large balances, but those balances make up the majority
of outstanding student loan debt. Research also
indicates that much of the rise in serious delinquency can be explained by a Great Recession
surge in enrollment and borrowing by nontraditional student loan borrowers who attended
private for-profit and public two-year colleges.14
These students had relatively high noncompletion rates and weak labor market outcomes. They
also tended to be first-generation borrowers from
lower-income families.

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Beyond pre-pandemic delinquency rates, what do
we know about forbearance rates prior to COVID-19?
Before the pandemic, the mortgage and student
loan markets handled forbearance in very different
ways.
Prior to the pandemic, the mortgage industry did
not systematically track the number of mortgages
in forbearance, because forbearance was either
highly personalized to the borrower, or enacted in
response to a shorter-term disaster. Instead the industry tracked delinquency, default, foreclosure, and
short sale rates to identify when forbearance may be
necessary and to understand the efficacy of forbearance in preventing home loss. Data from forbearance
programs enacted after the 2017 hurricane season
help illustrate this tracking method. The 2017 hurricane season led to a spike in serious delinquencies
(90+ days past due) in disaster affected counties, and
forbearance programs helped prevent home losses
over the following year. According to Black Knight’s
McDash mortgage performance data, these forbearance programs helped bring the home loss rate
down to 1 percent among seriously delinquent borrowers in hurricane affected areas, despite the initial
spike in serious delinquency.15
On the student loan side, the office of Federal
Student Aid provides deferment and forbearance

options to federal student loan borrowers who
experience financial hardship. The office reports
participation in these programs on a quarterly
basis. At the end of last year, 5.6 percent of the
total federal student loan balance was in discretionary forbearance or deferment due to unemployment or economic hardship (1.79 million borrowers). This was in addition to the much higher
percentage of loans in serious delinquency.
Where Do Forbearance Rates Currently Stand,
and What Might the Future Hold After
Programs End?
Indications are that mortgage borrowers and
servicers as a whole are weathering the storm
better than expected. In mid-April, Black Knight
announced that they would be tracking mortgages in forbearance through their McDash Flash
Forbearance Tracker. As of August 18, 3.9 million
homeowners were in forbearance. This represents
7.4 percent of all mortgages and $833 billion in
unpaid principal balance. (See Figure 3.)16 These
figures are down from the late-May peak of 4.76
million loans in forbearance — or 9.0 percent of
all mortgages — representing over $1 trillion in
unpaid principal. Although this may seem high,
the forbearance uptake rate is lower than some
expected, especially worst-case scenarios that
put the expected rate near 30 percent.17

Figure 3: National Mortgage Forbearance Rate

Share of Loans in Forbearance (percent)

10

9

8

7

6

5

4

Source: Black Knight's McDash Flash Mortgage Forbearance Tracker

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Second quarter data on student loan forbearance is
not yet available from the office of Federal Student
Aid. But, given that the vast majority of outstanding federal student loans were automatically placed
in administrative forbearance, we expect to see a
major shift in loans from repayment status (including
delinquency status) to forbearance. We can already
see this shift from the CCP data in Figure 2 above. In
the second quarter, there was a sharp decline in the
percent of debt counted as seriously delinquent.
What might these borrowers face going forward? On
August 8, President Donald Trump issued an Executive Memorandum extending forbearance for EDowned federal student loans through the end of the
year, beyond the CARES Act expiration date of September 30.18 Even so, borrowers face some significant
headwinds. As of writing this publication, the $600
per week in additional federal unemployment insurance (UI) benefits has expired, and Congress has not
passed other additional stimulus measures. A separate Executive Memorandum established additional
UI up to $400 per week, but the degree to which that
money will reach out-of-work individuals remains
unclear.19 For borrowers who previously received UI
and economic impact payments, a drop in disposable income will make it more difficult for them to
make ends meet overall, including servicing other
debt. The July employment report also indicated that
the jobs recovery may be slowing, potentially further
hampering future income prospects for borrowers.20
Should hard times continue beyond when automatic
forbearance eventually ends, federal student loan
borrowers will be able to access standard deferment,
forbearance, and income-driven repayment programs, just like they could before the pandemic. But
enrollment in these programs is not automatic; borrowers will have to overcome administrative hurdles
to determine their eligibility and to secure support.
And these programs are also not available to borrowers whose loans are in default status (unless these
borrowers go through loan rehabilitation or consolidation first). These borrowers face the prospect of
a January restart in interest accrual, wage garnishment, and offsets of tax refunds and Social Security
benefits, which has been on pause since March.

Mortgage borrowers have a longer time horizon
for low hurdle, CARES Act forbearance support
than student loan borrowers (up to 360 days).
But some of the same headwinds facing student
loan borrowers, namely exhaustion of other
government benefits and a slowing employment
recovery, could result in financial hardship for
mortgage borrowers as well. For borrowers with
both a mortgage and student loans, the cessation of student loan forbearance could also make
it more difficult for homeowners to stay current
on payments. On the positive side, record low
mortgage interest rates may bolster ability to
repay for borrowers eligible to refinance.21 The
strong housing market overall — including stable
house prices, low interest rates, and homeowners’ relatively high equity — generally provides a
buffer against pandemic-driven economic shocks
and incentivizes borrowers to continue payment.
Where Does That Leave Us?
CARES Act mortgage and student loan forbearance policies support individual borrowers and
help stabilize markets. Although these policies
and other government support have not eliminated financial stress completely, there are some
positive signs about their efficacy. The CARES
Act UI benefits and economic impact payments
helped households absorb initial financial shocks,
and in some cases, even put the household in a
better financial position; a portion of the population either saved their economic impact payment
or used the money to pay down debt.22 In addition, with forbearance programs in place, mortgage delinquency has remained low, and the
administrative pause in student loan repayment
has kept borrowers from falling into (or further
into) delinquency.

Notably, mortgage forbearance uptake has been
moderate, compared to projected uptake, and
is declining. Mortgage servicers initially experienced liquidity strain with forbearance provision,
but liquidity and regulatory supports appear to
have provided stability. The picture is opaquer on
the student loan side. With all borrowers automatically placed in forbearance, we lack a good

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understanding of the true degree of uptake — but
pre-COVID-19 measures of ability to pay indicate that
a relatively high percentage of student loan borrowers were already struggling with repayment.
All that said, the next several months will be important for household financial security, and there are
several related issues that the Richmond Fed is continuing to monitor: What will employment recovery
look like, and how will potential large-scale industry shifts affect workers and households across all
income brackets? What is the relationship between
local COVID-19 outbreaks and household financial
distress?23 How will the expiration of government
benefits, or the introduction of new stimulus measures, affect household balance sheets? Once mortgage and student loan forbearance programs eventually end, it will be especially important to monitor
which borrowers are struggling with repayment, so
that policymakers can consider targeted options to
support these individuals.
Emily Wavering Corcoran is a research analyst, and
Nicholas Haltom is a senior manager for research/regional and community analysis in the Research Department of the Federal Reserve Bank of Richmond.
Endnotes
1

F or a deeper discussion of unemployment insurance and
economic impact payments, see Surekha Carpenter and Laura
Dawson Ullrich, “Unemployment Benefits and Changes under
the CARES Act,” Richmond Fed Regional Matters, May 22,
2020, and Surekha Carpenter and Emily Wavering Corcoran,
“COVID-19 Financial Support: Who’s Covered and Who’s Not?”
Richmond Fed Regional Matters, May 6, 2020.

2

The full name of the CARES Act is the Coronavirus Aid, Relief,
and Economic Security Act.

3

S ee the New York Fed’s Quarterly Report on Household Debt
and Credit, 2020: Q2.

4

F or the composition of the mortgage market, see page 6 in
“Housing Finance at a Glance: A Monthly Chartbook, July
2020,” Urban Institute.

5

See “Protection for renters.” Consumer Financial Protection
Bureau.

6

S trochak, Sarah, Aaron Shroyer, Jung Hyun Choi, Kathryn
Reynolds, and Laurie Goodman. “How Much Assistance is
Needed to Support Renters through the COVID-19 Crisis?”
Urban Institute, June 2020.

7

F or the composition of federal student loans, see the “Federal
Student Loan Portfolio” from the office of Federal Student Aid.

8

F or the dollar value of private student loans outstanding, see
MeasureOne.

9

S ee “Federal Agencies Encourage Mortgage Servicers to
Work With Struggling Homeowners Affected by COVID-19,” Office of the Comptroller of the Currency, April 3,
2020.

10

T he American Bankers Association provides examples of
efforts taken by banks.

11

S ee “Governor Northam Announces Expansion of Payment Relief for Student Loan Borrowers,” April 29, 2020.

12

S ee pages 936 and 1,116 in the “2016 SCF Chartbook.”

13

S ee the Federal Reserve Board’s report on “Household
Debt Service and Financial Obligations Ratios.”

14

L ooney, Adam, and Constantine Yannelis. “A Crisis in Student Loans? How Changes in the Characteristics of Borrowers and in the Institutions They Attended Contributed
to Rising Loan Defaults.” Brookings Papers on Economic
Activity, Fall 2015.

15

See Black Knight’s Special Briefing, “COVID-19: Impact on
the Real Estate and Mortgage Markets.”

16

S ee “Number of Loans in Forbearances Remains Flat,”
Black Knight Blog Post, August 21, 2020.

17

F or a discussion of actual versus projected uptake, see
Kristopher S. Gerardi, Carl Hudson, Lara Loewenstein, and
Paul S. Willen, “An Update on Forbearance Trends,” Atlanta
Fed Real Estate Research blog, July 2, 2020.

18

S ee “Memorandum on Continued Student Loan Payment
Relief During the COVID-19 Pandemic,” August 8, 2020.

19

S ee “Memorandum on Authorizing the Other Needs Assistance Program for Major Disaster Declarations Related
to Coronavirus Disease 2019,” August 8, 2020.

20

S ee “The Employment Situation – July 2020.” U.S. Bureau
of Labor Statistics.

21

F or a related discussion of the Fed’s purchase of mortgage-backed securities to support the functioning of
the mortgage market and to put downward pressure on
mortgage rates, see Borys Grochulski, “Federal Reserve
MBS Purchases in Response to the COVID-19 Pandemic,”
Richmond Fed Economic Brief No. 20-08, July 2020.

22

S ee “How Are Americans Using Their Stimulus Payments?”
based on results from the U.S. Census Bureau’s Household
Pulse Survey, June 2020.

23

S ee Kartik B. Athreya, José Mustre-del-Río, and Juan M.
Sanchez, “COVID-19 and Households’ Financial Distress,
Part 4: Financial Distress and the Second Wave of COVID-19 Infections,” Richmond Fed Special Report on the
Economic Impact of COVID-19, July 2, 2020.

This article may be photocopied or reprinted
in its entirety. Please credit the authors, source,
and the Federal Reserve Bank of Richmond and
include the italicized statement below.
Views expressed in this article are those of the
authors and not necessarily those of the Federal
Reserve Bank of Richmond or the Federal Reserve
System.
Page 7


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102