3 There are extensive studies that focus on mortgage loss, prepayment, and severity, but very limited research on mortgage forecasting. Foote, Gerardi and Willen (2008) show that indulgence can be a very effective instrument for reducing losses in the context of a simple theoretical model, especially since it limits the moral risk associated with credit change, as borrowers who do not need help are unlikely to find indulgence attractive. Other research includes Agarwal et al. (2020) and Lin, Chu and Prather (2006). Mortgage leniency has played an important role in protecting borrowers affected by the COVID-19 pandemic by providing them with liquidity when they need it most. Millions of families have been able to stay at home with financial relief from mortgage access. Without leniency, many of these households would have been forced to sell their homes or defaulted on their mortgages, which in turn could have weighed on the housing market and led to further defaults in a vicious circle. 7 In our data, indulgence and delinquency are measured independently of one another. Interestingly, many households that enter into an indulgence agreement during the covid-19 crisis continue to pay out mortgages. In addition, the FHFA and the companies announced on June 29, 2020 additional measures to protect tenants and assistance to property owners. This has allowed mortgage service providers to extend leniency agreements for multi-family homeowners. Owners who had existing forbearance agreements of up to three months` duration could then extend for another three months – or a total indulgence of up to six months. The forbearance extension is available to owners of multi-family homes with a business-backed multi-family mortgage, which is facing financial difficulties due to the COVID 19 national state of emergency.
While a property is lenient, the landlord must suspend all evictions for tenants who are unable to pay the rent. The analysis by the Federal Reserve Bank of New York and the Urban Institute observes similarities between the economic impact of the COVID-19 crisis and the experience of hurricane-affected areas. See libertystreeteconomics. newyorkfed.org/2020/04/the-coronavirus-shock-looks-more-like-a-natural-disaster-than-a-cyclical-downturn.html and www.urban.org/sites/default/files/publication/102891/during-the-pandemic-policymakers-should-aufrechterhalten-Nachsicht-aber-fix-its-costs_0.pdf The COVID-19 pandemic has led to an unprecedented level of mortgage leniency.