Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA) have elected to suspend both foreclosures and evictions until the end of April per directions from President Donald Trump. This week, the president announced he had instructed the Department of Housing and Urban Development to suspend foreclosures and evictions for mortgages insured through the FHA.
“The halting of all foreclosure actions and evictions for the next 60 days will provide homeowners with some peace of mind during these trying times,” said HUD Secretary Ben Carson. “This will allow households who have an FHA-insured mortgage to meet the challenges of COVID-19 without fear of losing their homes and help steady market concerns.
FHFA director Mark Calabria said the move will enable homeowners affected by coronavirus to stay in their homes during efforts to contain the spread of the virus. However, he added, “As a reminder, borrowers affected by the coronavirus who are having difficulty paying their mortgage should reach out to their mortgage servicers as soon as possible.
12-Month Mortgage Suspensions
In addition to placing a ban on evictions and foreclosures, the FHFA is offering forbearance to homeowners who have lost income or jobs because of the coronavirus.
“That forbearance is up to 12 months, depending on their particular situation,” said Calabria. He added that homeowners will be able to “verbally testify” to the hardship and provide documentation later. “You’re not going to have to send 20 pieces of paper at the front of this. We want to do it quickly,” he explained.
Calabria emphasized that coronavirus forbearance is not loan forgiveness. In many cases, it is possible the lender might simply extend the term of the loan. He also noted that lenders who have been properly notified of a homeowner’s coronavirus-related issues will not report the delinquent payments to credit bureaus, but simply failing to pay your mortgage will still result in a hit to your credit.
“Don’t just make payments and ignore the problem,” Calabria said.
How Long Can Lenders and Landlords Take the Hit?
The issue with forbearance, of course, is that someone still has to pay the piper both during and after the moratorium period. Landlords, in particular, worry that bans on eviction will lead to increased costs to property owners as they become responsible for keeping utilities running and residents safe in their homes.
In a letter to the editor of the LA Times, one California landlord warned, “Deferring rents does not eliminate cash-flow hardship. It transfers the hardship to the title holders of the property being rented out. If owners with mortgages are sufficiently illiquid that they default and lenders foreclose, then no one is protected.”
Despite concerns like these, most cities have moved forward with eviction bans that allow renters who comply with recommendations from government agencies about staying home, provide landlords with verifiable documentation to support their inability to pay for a “covered reason,” and pay the portion they can afford up front to remain in their residences even if they do not pay their rent. Many cities are also requiring tenants to notify landlords prior to the day rent is due and considering updating these regulations to protect commercial tenants, such as retailers and restauranteurs, as well.
Do you think that coronavirus necessitates these types of bans?
Thank you for reading the Bryan Ellis Investing Letter!
Your comments and questions are welcomed below.