On July 25, the federal moratorium on evictions ended. There are also state and local moratoriums with various ending dates. There were at least 25 states with moratoriums. The $600 a week unemployment premium ended on July 31 with tens of millions of Americans remaining without a paycheck. The writing on the wall couldn’t be any clearer that if something drastic doesn’t happen soon, there is going to be a tsunami of evictions that will quickly lead to a spike in vacancies.
Freddie and Fannie did extend the moratorium on foreclosures and evictions for single-family homes until August 31. That foreclosure moratorium only applies to government-backed, single-family mortgages. That deadline will also be here soon. Additionally, the Fannie and Freddie extension applies to less than 34% (2019 U.S. Census) of the single-family rentals and does not include multiplexes and apartment rentals. That means more than 66% of renters need to pay their rent as of August 1. The estimated number of renters soon facing eviction is estimated to be between 20 million and 28 million. The actual number likely depends on what happens with both the unemployment trend and the unreliable U.S. Congress COVID-19 financial legislation.
The Eviction Tsunami Will Have Far-Reaching Tentacles
Landlords already feel the financial calamity sweeping the country. Additionally, when rent payments stop, so do mortgage payments, property taxes, utility payments, along with building maintenance and employees’ salaries. Today, most neighborhood stores still see a few customers straggling in but that will further dwindle once the apartment buildings begin emptying due to evictions.
Evictions have many more cascading consequences that begin by trashing credit scores. These will spill over to big corporations when car sales and all credit-dependent markets have millions of fewer consumers. There are no easy answers but more importantly, there is no meaningful action being taken. Neither to avoid nor even lessen the surging housing catastrophe and far-flung economic destruction that is already happening.
What Needs to Happen
Eviction moratoriums were never intended to be the final answer. Moratoriums were only a temporary answer to prevent millions of Americans from suddenly becoming homeless as a result of at least 46 states closing non-essential businesses starting back in March. Rent was not forgiven, the payments were only postponed with no plan for when or how late payments would be made up.
Logically, many landlords, businesses, and most people assumed some type of renter assistance would be provided or mandated by the federal government. The US House of Representatives’ HEROES Act, passed in May, would authorize a $100 billion fund but as we all know, the Senate has not yet taken action. An April 7 letter from the National Apartment Association and National Multifamily Housing Council (representing a combined 80,000 members) estimated the current needed funding at $144 billion with an additional $12 billion needed monthly. Their primary requests are:
Some states, counties, cities, and nonprofits have started short-term rental assistance programs but nowhere near at the level needed. There are various proposals to prevent requiring lump sum rent repayments. There are also proposals for repayment periods be a minimum of 6 months and up to 24 months.
The rent needs to be paid. Nationally, U.S. Census statistics show that about 22.7 million units are owned by individual investors. Many, if not most, of these are mom and pop owners who owe mortgages on their rental properties. People who have day jobs as their primary source of income. The rent payments make the mortgage payment and these investors are mostly depending on the rental income after they own the properties outright in their retirement years.
What Fannie Mae is Doing Today
On June 29, Fannie Mae Announced Updated Protections for Renters Impacted by COVID-19. This included support for multifamily property owners.
“Fannie Mae’s Delegated Underwriting and Servicing (DUS®) lenders have been delegated the decision to extend existing forbearances for multifamily property owners by three months, for a total forbearance of up to six months. If extended, once the forbearance period concludes the borrower may qualify for up to 24 months to repay the missed payments.”
Conditions apply. Borrowers (landlords) entering into a new or extended forbearance must provide these tenant protections:
In a nutshell, that is the rent moratorium situation today. Without a meaningful solution, it will not only injure scores of millions of tenants and landlords, but it will also be a primary fuel source as the entire economy burns down.
Please add your comments.
Also, our weekly Ask Brian column welcomes questions from readers of all experience levels with residential real estate. Please email your questions, inquiries, or article ideas to firstname.lastname@example.org.
Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for 12 years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, near a national and the Pacific Ocean.