Mortgage Forbearance During the COVID-19 Crisis

Mortgage Forbearance During the COVID-19 Crisis

Mortgage Forbearance During the COVID-19 Crisis

When the COVID-19 crisis broke out in the United States earlier this year, the federal government acted quickly to reassure families and businesses that the economy would be protected.

Almost six months after President Trump declared the Coronavirus to be a national emergency, the economy is in a recession and the home and mortgage markets are on shaky ground.

Federal efforts to protect the economy have mitigated the damage, but some of the most important programs are set to expire. Government-enforced forbearance programs are coming to an end, and this is what could change in the coming weeks…

Mortgage Forbearance Program Expires on August 31st

The Coronavirus Aid, Relief, and Economic Security (CARES) Act passed into law on March 27, 2020. Designed to provide sweeping relief and stimulus measures to the American economy, it featured some special inclusions for homeowners.

People with FHA, VA, USDA, Fannie Mae, and Freddie Mac loans were able to take advantage of a forbearance or mortgage relief program [1].

People affected by the COVID-19 crisis (whether through health problems or economic hardship) could ask their lender to allow up to 180 days of forbearance with reduced or delayed mortgage payments. Within the initial 180 days, homeowners could apply for an extension of an equal period, taking the total forbearance up to 360 days.

Homeowners can still apply for the program, but it will expire on August 31st. Some lenders may not have the resources to process a forbearance application between now and that time.

This creates a challenge for people who are still out of work and unable to pay their mortgages.

The House of Representatives attempted to pass a new law to replace the CARES Act, but it met resistance in the Senate and the Executive Office. Known as the HEROES Act, it would have extended unemployment benefits of $600 per week for people who lost their jobs during the pandemic.

Because the act never became law, it was superseded by Presidential executive order, allocating federal unemployment benefits of up to $300 per week for eligible people.

Without an extension to the forbearance program, and with smaller unemployment benefits, America could soon face a mortgage crisis… at least, that’s what many people expect. However, the data tells another story.

Forbearance Numbers Not as High as Anticipated

According to data reported by Black Knight research [2], forbearances are now below 4 million for the first time since April. In the second week of August, the number of mortgages actively under a forbearance program decreased by 71,000.

This leaves just 7.4% of all mortgage loans in forbearance. That’s 3.9 million out of a total of 53 million active mortgages.

Foreclosures and evictions will soon resume, but there’s hope that the relatively low number of people seeking mortgage assistance means that the risk of widespread foreclosures is low.

Will Politicians Push for More Forbearance Flexibility?

With Congress failing to reach a bipartisan agreement on a second round of Coronavirus stimulus, it seems unlikely that the federal government will mandate any new forbearance programs in the short term.

This could soon change however, with the Presidential election coming up, both parties will likely reveal new policies aimed at attracting American voters.

As it stands today, homeowners can request forbearance from their lender up until August 31, after which any payment agreements will need to be negotiated without the benefit of a Federally enforced program in place.

References:

1: https://www.consumerfinance.gov/coronavirus/mortgage-and-housing-assistance/

2: https://www.blackknightinc.com/blog-posts/forbearances-below-4-million-for-first-time-since-april/

The Current Status of Unemployment Benefits and the Impact on the Rental Market

The Current Status of Unemployment Benefits and the Impact on the Rental Market

The Current Status of Unemployment Benefits and the Impact on the Rental Market

On July 25th, funding for the federal government’s $600 weekly benefit lapsed, leaving millions of unemployed Americans without a subsidy on top of state payments.

The Democratic-majority House of Representatives passed a bill ensuring that the $600 benefit would continue, but it was met with resistance from the Republican-majority Senate and the White House.

Instead, President Trump offered a $300 federal subsidy through an executive order, although eligibility is not as widespread as the earlier benefit. Learn how the benefit works today, and what it means for renters and the wider home market.

Benefit Payments Depend on State Involvement

Under the executive order, states will only be eligible for a federal subsidy if they contribute $100 to the weekly payment. For the unemployed to be eligible, they need to already receive at least $100 of subsidies from the state government.

This leaves many people unable to receive the federal subsidy. According to some states, the disparity is significant.

In Texas, up to 350,000 unemployed citizens won’t be eligible for the $300 benefit. These same people would have been eligible under the previous $600 weekly benefit backed by Congress.

States must apply to receive the additional funding, which will be administered by FEMA (Federal Emergency Management Agency). Up to 30 states have already applied. The states need to demonstrate that they have the infrastructure in place to disperse payments.

The $300 in federal funding is seen as a compromise. Many Republican lawmakers were initially opposed to extending the $600 benefit, claiming that it disincentivized people from looking for work.

However, some academics dispute the assumption. In a July report published by Yale University [1], researchers found that people receiving the generous $600 weekly benefit had “returned to their previous jobs over time at similar rates as others. We find no evidence that more generous benefits disincentivized work.”

It should be noted that even as some workers received more in federal subsidies than their previous salaries, they lost out on benefits like insurance subsidies, retirement programs, and even non-financial benefits like the opportunity for professional development.

Will Low-Income Earners Return to Work Now That Federal Subsidies are Reduced?

We can see from the most recent unemployment data that people are returning to work. This was happening before President Trump announced the $300 federal subsidy in his executive order.

As state lockdowns have eased, companies have reopened for business, and around 9.3 million of the 22 million jobs lost earlier this year have been returned to the economy, according to data from the Bureau of Labor Statistics [2].

Most of that figure came back to the economy in June.

Job Numbers and the Real Estate Market

With jobs returning to the economy, the home market has shown some signs of recovery.

  • 90% of professionally managed rental households have paid rent (in part or whole) so far in August. 70% of independently managed rental households have done the same [3].
  • 2% of mortgages are engaged in relief programs, a decline of 1.35% since June.
  • Existing home sales increased by 24.7% from June to July but are down 21.1% annually [4].

The mixed results reflect the fragile nature of the market today. The COVID-19 crisis has hurt the economy, and it could take years to recover. As jobs return, households will become more confident with spending, and rent delinquencies should decline.

Home buying activity is clearly starting to recover, which is good news for the wider market, including the mortgage market.

References:

1: https://tobin.yale.edu/sites/default/files/files/C-19%20Articles/CARES-UI_identification_vF(1).pdf

2: https://data.bls.gov/timeseries/CES0000000001?output_view=net_1mth

3: https://www.zillow.com/research/daily-market-pulse-26666/

4: https://www.cnbc.com/2020/08/21/july-home-sales-spike-a-record-24point7percent-as-prices-set-a-new-high.html

Coronavirus Impact on Multifamily Compared to Other Asset Classes

Coronavirus Impact on Multifamily Compared to Other Asset Classes

When the Coronavirus was first identified and people across the US were required to stay home, there were concerns about how this would affect the housing market. What has happened to the multifamily market, and how has it compared to other asset classes in the country?

Fears Around Multifamily Homes and Coronavirus

When the call to stay home went into effect, this made many developers and landlords nervous. If people were being furloughed or laid off from their jobs, there was a fear that many of them were going to be unable to make mortgage and rent payments. As the situation is so unprecedented in modern times, no one was sure how this was going to play out.

The Effect of Coronavirus on The Multifamily Market

So far, there doesn’t actually seem to be much of a dip in rental payments over the course of the lock down. In April, 84% of renters managed to pay all or part of their rent by the 12th of the month. This is much more than some were predicting, even as many were losing income. In fact, the amount renters making payments is on average the same as this time last year.

This is encouraging news for those in the industry, as it shows that payments are still being made even as the situation is still uncertain. As payments are being processed, multifamily homes are seen as one of the most stable markets right now.

The Effect on The Purchase Market

What is the consensus opinion on how the Coronavirus will affect the purchase market? This is where it appears to be having an impact. Many are finding that with the virus still present, they cannot access the funding to buy their own home so they will need to continue to rent.

This has caused major problems for buyers, because as of now, there is no indication of when the virus will be totally under control. Until then, lenders are placing stricter guidelines on who they can lend too, and how much they can lend out. This will keep them safe for the time being but will tarnish the short-term market. You can expect to see a downturn in profits from mortgage lenders.

It’s not surprising to see that multifamily markets are mostly stable, despite what was predicted. With it being much harder to now buy property, renters are staying put where they are. As the virus stabilizes, they’ll need to stay where they are and wait for lenders to be more willing to help them buy property again.

How Bad Is The Affordable Housing Crisis In The US?

How Bad Is The Affordable Housing Crisis In The US?

There’s no denying that people across the US are facing a housing crisis. As a renter, you may well find yourself paying 30% or more of your income just to keep a roof above your head. If you’re looking to buy a home, you’ll see that house prices are rising at twice the rate of wage growth. Just how bad is the housing crisis, and what can be done about it?

Buying Vs. Renting

Ask any renter, and they will tell you that they would love to own their own home someday. The problem is that it’s almost impossible for them to afford a home. In recent studies, a person working 40 hours a week at minimum wage cannot afford a two bedroom home anywhere in the country.

This causes problems, as affordable housing currently favors buyers over renters. You can see this in tax deductions, as they essentially subsidize middle- and upper-class homes, rather than affordable homes. It’s taken the ability to afford a home out of reach of millions of people in the country.

Rising Costs

It’s not just the cost of buying housing that has gone up. To build those homes, the cost of materials has gone up too. Right now, lumber alone makes up 5 to 10% of the cost of building a home. With these costs rising, it’s getting harder to build affordable housing.

Restrictive Zoning Laws

Zoning laws have created a lot of problems for those trying to create affordable housing. In some areas, such as Los Angeles and San Francisco, put limits on what can be built. These can include limits on how high buildings can go, requiring a certain amount of parking spaces, and so on. These limits have come into place and have restricted developers in their opportunities to create new housing.

What Can Be Done?

There are certainly ways in which the housing crisis can be turned around. Inclusionary zoning laws have been brought into places like New York, allowing for more affordable housing to be built. With more existing properties being turned into affordable housing, this will increase demand too. With around 7.2 million affordable homes being needed across the US, it remains to be seen whether this will help with demand.

It’s clear that many factors have lead to the US housing crisis. If changes are made in how affordable housing is built though, these problems can be mitigated.

How To Buy Convert An Existing Apartment Community Into Affordable Housing

How To Buy Convert An Existing Apartment Community Into Affordable Housing

In recent years, affordable housing has become a key issue across the US. More and more people are looking to live in urban areas, so more housing is needed. With wages stagnating and the cost of living rising, finding the right housing is becoming much more difficult.

There are many developers who are looking to transform older buildings into affordable housing, and this brings a lot of benefits. As the homes are built into existing buildings, they’re much cheaper to develop. They don’t require planning and building from the ground up, and they can be completed much quicker. Here’s how you can do this too with an existing apartment community.

Getting Funding

Depending on your location in the country, you may be eligible for grants and loans to help you achieve this goal. For example, in Denver, Colorado, a $10 billion Revolving Affordable Housing Loan Fund has been launched. This gives developers access to funds they didn’t have before, so they can revitalize older buildings.

Maintaining Historic Status

The great thing about revitalizing older buildings is that they get to stay in the community, rather than being destroyed to make way for new homes. Buildings like older churches and schools are commonly turned into housing, giving them new purpose. If you do this, you’ll need to be sure that you’re maintaining and preserving the historic nature of the site as you convert it.

A Modern Equivalent to Single Room Occupancy

Single room occupancy homes were popular in the past, but restrictions on building them have made these homes much harder to come by. Converting existing apartment buildings into something similar means the concept is coming back, in a new and modern way. Buildings are adapted to suit modern building codes, and the people in the community have access to affordable housing.

Benefits of Converting Apartments

There are so many benefits to adapting an existing building, such as apartments, into affordable housing. It’s a boon to the community, as the housing is available faster, and gives them a great option for lower income housing. For you as the developer, you’ll see there’s lots of incentives and opportunities to build in your city.

Converting an older building into affordable housing is easier than you’d think and makes a lot of sense. You can get funding for it, so you can create housing that the community needs.