Forbearance and the Cost of Credit

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ID: 329879
2026
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Abstract
Abstract Using novel data from the GSE Credit Risk Transfer (CRT) market and the enactment of the 2020 CARES Act as a natural experiment, we study the ex-ante pricing of mortgage forbearance. We show that private investors demanded higher compensation for bearing mortgage credit risk following the introduction of federal mortgage forbearance. The increase in CRT spreads was larger for securities with greater exposure to judicial foreclosure regimes, lower expected house price growth, higher house price volatility, and riskier borrowers. These patterns suggest that investors priced heightened uncertainty regarding future collateral values and recovery outcomes. We find little evidence that the response was driven by broader financial market conditions, prepayment risk, servicer liquidity concerns, or strategic forbearance take-up. Our findings show how borrower-protection policies are transmitted to mortgage markets through the pricing of mortgage credit risk.
Reference Key
openalex_W7214503545 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Pedro Gete, Andrey Pavlov, Athena Tsouderou, Susan Wachter
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Journal international review of finance
Year 2026
DOI
10.1093/rof/rfag044
URL
https://doi.org/10.1093/rof/rfag044
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