With most rent and mortgage checks due Friday, progressives are pushing for an immediate moratorium on housing payments to ease the economic burden of the coronavirus pandemic.
The high cost of living in some of the hardest-hit states and cities, coupled with more than 26 million Americans filing for unemployment benefits since mid-March, has highlighted the financial stress facing millions of households each time a new month draws near.
“Nearly one-third of all renters in America could not pay the rent on April 1st — and that number is expected to be even higher this month,” said Rep. Ilhan Omar (D-Minn.) in a statement to The Hill.
“We are at risk of a full breakdown of our housing market — including mass displacement and homelessness — if the federal government does not step in immediately,” added Omar, who has introduced a bill requiring a freeze on rent and mortgage payments during the pandemic.
The average monthly housing cost for an American household is nearly $1,500, according to Bank of America. Among renters, 38 percent were considered “rent burdened” as recently as 2015, meaning more than 30 percent of their income went to their landlord, according to the Pew Charitable Trusts.
“If you look at this before COVID hit, the country was facing an affordability crisis across markets,” said Chris Vincent, vice president of government and advocacy relations at Habitat for Humanity. “When you couple it with upwards of 25 million unemployed in a very short time, it just exacerbated something that was already very difficult.”
What awaits on the other side of the pandemic, he said, could be “a housing crisis on steroids as compared to what happened in 2008 and 2009,” when the global financial crisis was in full swing after the collapse of the housing market.
Housing activists on Tuesday organized strikes around the country, carrying banners that read “Cancel Rent” and prodding political leaders online with the hashtag #CantPayMay.
“People aren’t striking because they don’t feel like paying rent. People are striking because they CAN’T pay rent,” Rep. Alexandria Ocasio-Cortez (D-N.Y.) said in a video in support of protesters Tuesday.
Omar’s bill, which has the support of both co-chairs of the Congressional Progressive Caucus, would temporarily halt all rental and mortgage payments. It would then set up government funds to reimburse landlords and financial institutions for lost revenue, though it would also require them to agree to stringent restrictions, including a five-year moratorium on rent increases.
But some industry experts warn that aggressive government actions could cause more harm than good.
“We’re completely in support of rent support efforts that are out there, such as direct payments and enhanced unemployment. But that’s different than fundamentally changing the way the mortgage system works,” said Mike Fratantoni, chief economist for the Mortgage Bankers Association.
Even though Omar’s bill faces long odds of making it through Congress, Fratantoni said the kind of approach she proposed could throw a wrench in the complex mortgage financial system.
“The system is tied together in ways that aren’t necessarily obvious,” he said. “You can’t just turn off part of the mortgage system without having an effect elsewhere.”
Tomasz Piskorski, a professor of real estate and finance at Columbia Business School, said that while a wave of defaults, foreclosures and evictions could cause problems in the financial system, the blanket approach to the residential market in Omar’s proposal wasn’t the solution.
“I think it’s just too far reaching, too costly, and it might not work quickly enough to provide financial stability,” he said.
In Piskorski’s economic modeling, the worst-case scenario from the pandemic would result in 30 percent of homeowners defaulting on their loans, meaning government support for the other 70 percent would be unnecessary.
Both Piskorski and Fratantoni say the approach taken in the $2.2 trillion emergency relief CARES Act is better. The bipartisan law, which President Trump signed on March 27, offered homeowners forbearance on mortgage payments, meaning they could put them off if they were affected by the crisis. Evictions were temporarily banned.
Seven percent of mortgages are already in forbearance, according to the Mortgage Bankers Association.
But while many mortgage service providers have allowed borrowers to tack on the missed payments to the end of their loan period, some lenders are insisting they be paid when the period of forbearance ends.
Policies like those, Piskorski said, could worsen an already bad situation, both for individuals and the financial system.
“If you’re unemployed for six months, how the hell are you going to come up with six months of payments at the end? It won’t happen,” Piskorski said.
Updated at 4:37 p.m. on April 30.