After three extensions, millions of Americans are facing the hard reality of losing their housing as CARES Act eviction and foreclosure protections officially ended Saturday.
Democratic policymakers and housing advocates made a last-ditch effort to extend protections for renters and homeowners who are still on the rebound from illness and unemployment, but it’s time to start considering what exactly the end of the moratorium means for the real estate industry and the economy.
Is a Great Recession-esque wave of evictions and foreclosures on our doorstep? What options are left for tenants and homeowners unable to pay their housing debts? Could at-risk homeowners’ stumbling block become a stepping stone for buyers struggling to find inventory?
Mortgage Bankers Association Chief Economist Mike Frantantoni, Nerdwallet Mortgage Expert Holden Lewis, National Association of Realtors Chief Economist Lawrence Yun, Better.com Head of Mortgage Finance and Servicing Chris Diamond, and National Low Income Housing Coalition President and CEO Diane Yentel sat down with Inman to answer the burning questions everyone has about the end of eviction and forbearance protections.
What happens July 31? Will evictions begin that day?
Throughout the pandemic, the federal government has extended eviction and foreclosure protections four times. The first extension moved the deadline from Sept. 4, 2020 to Jan. 31, 2021, and the second extension offered renters and homeowners a reprieve until March 31. Then on March 29, the deadline was extended time to June 30, but on June 24, the Biden administration extended it for a fourth and final time until Aug. 1
Unless the federal government extends protections again, NLIHC President Diane Yentel said the much-feared eviction wave will become a possibility. Yentel said it’s difficult to know the exact number of vulnerable tenants (the Consumer Financial Protection Bureau’s latest estimate is 11 million) and how fast the evictions will take place.
“If the eviction moratorium expires at the end of this month, we will see a historic wave of evictions throughout the summer and fall,” she said, adding that it’s hard to say how fast it would happen.
Yentel said some local courts won’t be able to handle a deluge of eviction filings, which will slow down the process and provide tenants with the opportunity to find other housing arrangements or catch up on past-due rent with emergency rental assistance funds.
However, in states with rental laws that have enabled landlords to complete every part of the eviction process except physical removal, Yentel said there could be thousands of renters on the streets in a matter of weeks.
“One of the key flaws in the moratorium is that it allows for landlords and judges to take all the steps in the eviction process up to physically removing somebody from their homes, which is prevented as long as the moratorium is in effect,” she explained. “The last remaining step to take is physically removing somebody from their home, which can happen very quickly when the moratorium expires.”
“So in some communities, I do think we’ll see a rapid flow of evictions and in others, it will be a slower movement that will happen over weeks and months,” she added.
What about homeowners? Are they facing the same level of risk as renters on July 31?
MBA Chief Economist Mike Frantantoni said homeowners are on the rebound, with mortgage forbearance rates dropping from a pandemic high of 8.5 percent in June 2020 to 4.3 percent for the week ending June 4, 2021.
“In terms of numbers of households, currently, about 2.1 million homeowners are in forbearance, and any federally backed loans are eligible for up to 18 months of forbearance,” he explained. “So at the end of June, many [homeowners] will hit that 15-month point and can request and that final three [months], which will get them to September.”
Frantantoni said the three-month extension isn’t automatic and homeowners will need to contact their servicer on July 31 to get additional time. However, he said many homeowners won’t need that extension as they’ve been making full or partial payments during the forbearance period, or have opted to have their missed payments added to the end of their loan period.
“At least to my eyes, [mortgage forbearance trends] really have been a good news story in the sense that about three-quarters of those who have exited are going back to making their payment that they had prior to the pandemic,” he said. “Even though borrowers were in forbearance and weren’t required to make payments, many kept making them and so they’ve been able to exit while current.”
Although current unemployment reports are painting an optimistic picture for Americans’ ability to get back on track with housing payments, Frantantoni said there is a portion of homeowners that will still be in the red come September. Those homeowners can apply for a mortgage modification or attempt to access funds from the $10 billion Homeowner Assistance Fund to catch up, he said.
If neither option works, Frantantoni and the three other economists Inman interviewed said homeowners have an excellent option on the table: sell their home.
“Mortgage holders – representing roughly 65 percent of U.S. homes – saw their equity surge by 19.6 percent, according to new data,” Better.com’s Chris Diamond said in a written statement. “That represents about $33,400 per borrower, the largest average gain in at least a decade.”
Nerdwallet mortgage expert Holden Lewis said the current surge in home values means foreclosures will be few and far between, as homeowners will have ample opportunity to sell their homes to the highest bidder, especially as the homebuying market is expected to stay scorching-hot well into the fall and winter.
“When the house is worth a lot more than the mortgage owed, there’s really not much reason to do a foreclosure. Those people can just sell their house, pay off a mortgage, and pocket the extra change,” he said. “You are going to have distressed sales, where people are selling when they don’t want to, but they’re going to be able to sell for more than they owe, and they’ll be able to do it on their own timetable.”
It is great that homeowners will, for the most part, avoid foreclosure. But how long will it take for them to reenter homeownership, especially as home prices continue to skyrocket?
Holden acknowledged during The Great Recession, it took the average homeowner seven years to reenter homeownership due to the massive hit to credit scores, income and savings. However, he said a rebounding jobs market and robust home value growth means homeowners who sell this year should be able to reenter homeownership much faster.
“The mortgage forbearances have given people protection against their credit scores falling if they were able to continue making their payments on all their other debts,” he said. “[Homeowners] have been protected against their credit score going down because they weren’t making mortgage payments, and they’ve kept relatively good credit records and scores.”
“People are going to be able to bounce back faster than they did after 2008,” he added. “They’re not going to have to wait years and years for their credit scores to recover because their credit scores just won’t fall as much.”
“You know, I think that that is one of the lessons that was learned after the economic collapse.”
Now, what does this mean for homebuyers? Albeit opportunistic, will at-risk homeowners’ selling their home provide any meaningful relief for homebuyers?
In short, the answer is no.
Some markets could experience a slight inventory bump, especially in ZIP codes with a high share of FHA mortgage loans. Frantantoni said more than 11 percent of FHA borrowers are seriously delinquent, meaning they are three or more months past due and at high risk of foreclosure.
“The concern is particularly for FHA borrowers who bought in the last year or so and just may not have as much equity built up, it might be a little more difficult for them to sell [and make a profit],” he said.
Although those homeowners will undoubtedly and unfortunately take a hit, homebuyers could snag a listing for much less than comparable homes on the open market with homeowners unburdened by the risk of foreclosure.
But overall, Lewis said whatever sales happen as a result of mortgage forbearance ending, short, distressed or otherwise, won’t make a noticeable impact on inventory.
“Yes, you’re going to have a few houses put on the market, but I think that it’s just not going to make much of a difference, it’s not going to be a big part of the market,” he said. “People are going to be given time to [make a sale], so it’s not going to be a bunch of houses dumped on the market in June and July.”
“It’ll be something that happens over the next six months, or maybe even 12 months,” he added. “So when you don’t have just a ton of houses just drop on the market at once, you won’t have one big impact on inventory and prices.”
What poses the greatest risk to the overall economy? The mortgage moratorium ending or the eviction moratorium ending?
NAR Chief Economist Lawrence Yun said the end of the mortgage moratorium will have no negative impact on the overall economy.
“With the nation’s severe housing shortage persisting, properties listed will not linger in the marketplace and available inventory will continue to be fought over by both potential homeowners and investors,” he said in an emailed statement. “There will be some increase in foreclosures, but given the exceptionally strong demand for housing in America today, listed properties will not linger in the marketplace, meaning there will be no downward pressure on home prices.”
“Fannie and Freddie allow those who went through a short sale for foreclosure to return in as little as 2 or 3 years if they can demonstrate that the distressed sale was due to an extenuating circumstance like a job loss for a longer period that is beyond the owners’ control,” he added in reference to a future in boon buyer demand.
On the other hand, Lewis and Yentel said the immediate economic impact of the eviction moratorium ending is unclear. “I’m really worried about it, and part of the reason I’m worried about it is, I feel like I have no idea what’s going to happen,” Lewis said. “I think the rental eviction problem is probably bigger than the foreclosure issue we’re going to face, and it’s going to be devastating for people who are evicted.”
Yentel said the economic impact of an eviction tsunami will be most felt at the local level, as city leaders will have to grapple with the financial and logistical challenges of moving evicted renters through an already burdened shelter system.
“Certainly, no state and city shelter systems certainly cannot handle an influx of people in need,” she said.
Beyond the immediate cost of attempting to place people in shelters or other kinds of temporary housing, Yentel said there are massive long-term costs associated with evictions.
“Evictions lead to poor health outcomes, especially for children and moms who can report depressive episodes related to their eviction many years later,” she explained. “There was a study that came out of Children’s Healthwatch that found that over the next 10 years, we’ll pay $111 billion in avoidable health care costs because we allow for homelessness and poverty to persist.”
“We would only be adding to those costs if we allow for a wave of evictions to occur,” she added.
What are the next steps for tenants and landlords? Although another extension would be the best-case scenario, is there anything else that could soften the blow?
Yentel said it’s hard to place an official timeline on when she and other housing advocates would like the moratorium to end. “You can’t put an arbitrary date on it,” she said. “But we certainly think it should be extended at least until all of the historic resources that Congress has appropriated for emergency rental assistance reach the low-income renters and landlords who needed to keep tenants stably housed.”
Between the American Rescue Plan and the Consolidated Appropriations Act, there’s $45 billion in emergency funding available to renters and landlords. Yentel said those funds could pull renters and landlords from the brink, only if they could access them.
“What we have to do, as soon as possible, is get these unprecedented resources for emergency rental assistance to address rent arrears to the tenants and landlords who need it the most,” she said. “We had a slow start to the Emergency Rental Assistance Program for sure, and [states] are writing checks, some faster than others.”
According to the latest estimates, only $16 billion of $45 billion has been dispersed. Yentel said the Treasury Department has released new guidelines to speed up the process, but it’s still not fast enough to help renters before the July 31 deadline.
Even if the federal government declines to extend the moratorium, Yentel said state and local governments still have the opportunity to protect their citizens. She pointed to New York City and Philadelphia’s eviction mediation and eviction diversion plans as stellar examples of what can be done.
“If a landlord shows up in eviction court in Philadelphia, they first have to prove that they haven’t applied for emergency rental assistance,” she said. “If they haven’t, the judge won’t hear the case until they do and until they participate in an eviction mediation. This is a model program that should be replicated.”
In regards to landlords, Yentel said some don’t apply for emergency assistance due to the concessions they’d have to offer renters.
“For example, in some cases, a program administrator may pay the landlord the arrears that are owed to them and in exchange, the landlord has to agree not to evict for some period of time, or not to raise the rent for some period of time,” she explained. “Some landlords are finding those concessions to be more than they’re willing to agree to, and they walk away from the program altogether.”
At the end of the day, Yentel said the moratorium is a band-aid for deeper issues with the government’s approach to housing, poverty and providing social safety nets. What’s needed, she said, is a system that enables renters, landlords and homeowners to withstand unexpected events like the pandemic.
“The same renters who struggled to pay the rent pre-pandemic and struggled to pay it during the pandemic, will continue to struggle to pay it after the pandemic, unless and until the federal government invests in the long term solutions that are needed to make homes affordable and accessible and safe for the lowest income people,” she said. “We came to the very brink of an eviction tsunami during a global health emergency because we have a shredded social safety net.”
“With a major expansion of the National Housing Trust Fund program, we have an opportunity to do just that in this infrastructure spending package,” she added. “If we [pass it], it would go a long way towards beginning to end homelessness and housing poverty in our country.”