The expiration of forbearance programs will lead to increased delinquencies in the absence of further government stimulus, Fitch Ratings says. The impact of forbearance measures on asset performance is explored in Fitch's new report Coronavirus Global Structured Finance Performance Report: Unwinding of Debt Relief Programs May Impact Asset Performance.

The vast majority of forbearance plans that were granted in the first few months of the pandemic are expiring now, and borrowers will need to resume regular payments and make up for missed payments. With slowing economic growth and elevated unemployment, weaker borrowers carrying more debt will fall delinquent, with loan performance expected to deteriorate. There has not been widespread extension of debt relief programs, although some sectors have selectively offered forbearance beyond the original terms.

Almost all asset classes offered some sort of payment deferral plan to borrowers, although the adoption of forbearance measures differs significantly. For most regions, with the exception of Latin America, overall payment deferral take-up rates for residential mortgage-backed securities (RMBS) were generally much higher for non-conforming loans than prime loans. US RMBS delinquency rates are expected to remain high in the near term, although these largely reflect loans in forbearance reported as delinquent. Conversely, we do not expect arrears to strongly increase in Europe and Australia RMBS until the payment deferral periods end.

The forbearance take-up rates were high for both US Federal Family Education Loan Program student loans and marketplace lending programs, with peaks at 23% and 20%, respectively, in 2Q20. Auto loan payment deferral take-up rates were much higher for US subprime borrowers, around 20%, compared with US prime borrowers and all borrowers in EMEA, for which the highest rate was close to 3.7% in Spain. Although payment deferrals were low for US credit cards, Fitch expects some small uptick arrears adjustments over the coming months as consumers using financial relief programs were not considered delinquent. In US commercial mortgage-backed securities, hotel and retail loans received the vast majority of payment relief granted to date.