Participation in tolerance dwindles as the end of programs approaches – Liberty Street Economics



Federal Reserve Bank of New York Microeconomic Data Center today released my Quarterly Home Debt and Credit Report for the second quarter of 2021. It showed that total household debt increased rapidly over the period, with an increase in balances of $ 322 billion, mainly due to a 2.8 percent increase in mortgage balances, a 2.2 percent increase in credit card balances, and a 2 Car account balances increased by 4 percent. In particular, mortgage balances were boosted by new loans worth a record $ 1.22 trillion. While some borrowers make new loans, troubled borrowers continue to participate in abstinence programs, in which they suspend payments on their debts and create additional upward pressure on outstanding mortgage balances.

This analysis, as well as Quarterly Home Debt and Credit Report based on New York Fed Consumer Credit Group (CCP)5 percent representative sample of consumer credit reports from Equifax that we used to monitor home balance health sheet and acceptance of tolerance since the arrival of the pandemic. While the number of mortgage refusals associated with the pandemic has decreased over time, thanks to the recovery in economic activity and stimulus payments, there has been some increase in the inflow of funds for abstaining from mortgage payments not directly related to the pandemic.

When Texas and some neighboring states were hit severe weather in winter 2021, almost 70 percent of borrowers lost electricityand many borrowers experienced damage to their property, resulting in additional mortgage delays. Texas is a large state, enough for the United States as a whole to experience fluctuations in tolerance. So in the table below, we break down these effects separately, we use the wealth of our patience data to isolate these effects separately. We are seeing a steady outflow of patient borrowers as the pandemic began to subside, and by the end of June 2021, mortgage deferral was still 2.7 percent (after hurricane-related abstinence, the national rate is 3.3 percent. ).

Patience participate, enter and exit

Source: New York Fed Consumer Lending Panel / Equifax.

In the map below, we look at the abstinence participation rates in all states outside of Texas. Texas and Oklahoma rank highest as both were hit by storms: unlikely to reflect CARES-related abstinence, but rather weather related. The map shows significant geographic differences in participation in mortgage loan pandemic waiver programs, with states in the Southeast having the highest levels of continuing tolerance, with the exception of Carolina. This variation likely reflects a combination of the severity of the local economic impact of the pandemic and differences in awareness, interest and borrower access to these programs.

Percentage of mortgage loans issued by the state, June-2021

Source: New York Fed Consumer Lending Panel / Equifax.

Finally, we look at the composition of borrowers who remain patient. Over the past fifteen months, 9.3 million mortgages were on hold at some point. However, only 21 percent of these mortgages, or just under 2 million, remained on hold at the end of June 2021. lower average credit rating compared to participants a year ago. The chart below analyzes the aggregate of mortgages that borrowers did not repay before the pandemic began. A year ago, 32% of mortgages were associated with first-class borrowers with a credit rating of 760 or higher. But the composition changed, and that share fell to 25 percent, with 39 percent of the remaining bad mortgages held by borrowers with a credit rating below 620. This is especially notable when you consider that the total mortgage pool is much more biased towards Prime – only 18 percent outstanding mortgages are associated with subprime borrowers.

We find similar, albeit less pronounced, results when we look at the same share disaggregated by the income of the borrower’s neighbors. While we do not track income directly on credit reports, we can group our borrowers using the average income by their zip code using data from the IRS income statistics. Mortgages owned by borrowers in the lowest income areas account for only 16 percent of the total outstanding mortgages, but at the end of June they accounted for 21 percent of deferred mortgages. This is consistent with the finding that mortgage abstinence is correlated with the credit rating of the mortgage issuer.

Subprime borrowers are more likely to be patient and more likely to stay

Source: New York Fed Consumer Lending Panel / Equifax.

Looking ahead, it can be said that those borrowers who are patient are borrowers who are most likely to face difficulties when this policy is lifted. Federally backed mortgages are eligible for deferrals of up to eighteen months, depending on when the initial deferrals began. With this restriction in place, many tolerant borrowers will face the restraints of this leniency in the next 3-4 months, when they must either renew payments or be forced to sell their homes to avoid delays in payment and subsequent foreclosures. It appears that the CARES Act and other household support policies have been largely successful in preventing widespread damage to household balance sheets, with little evidence of an increase in delinquencies in our country. Quarterly report… However, it is unclear how the winding down of these programs in a still recovering economy will affect mortgage borrowers across income and credit rating groups and geographic regions.

Andrew Howout is the senior vice president of research and statistics at the Federal Reserve Bank of New York.

Donghun Lee is an employee of the Research and Statistics Group of the Bank.

Joel Scully is Senior Data Strategy Officer in the Bank’s Research and Statistics Group.

Wilbert van der Klauw is Senior Vice President of the Research and Statistics Group of the Bank.

How to cite this post:

Andrew F. Howout, Donghun Lee, Joel Scali, and Wilbert van der Klaau, “Patience for Participation Diminishes as Programs Near End,” Federal Reserve Bank of New York Liberty Street Economics, August 3, 2021,

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Denial of responsibility

The opinions expressed in this post are those of the authors and do not necessarily reflect the views of the Federal Reserve Bank of New York or the Federal Reserve System. The authors are responsible for any errors or omissions.


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