Calls mount for U.S. to halt foreclosures, evictions amid health crisis
WASHINGTON—As the novel coronavirus hammers the global economy, lawmakers and housing advocates are calling for a national moratorium on evictions and foreclosures while cities on each coast have started taking their own actions.
Miami and San Jose, Calif., have temporarily stopped all evictions in light of the pandemic, and several other cities, including San Francisco and New York, are considering doing the same.
But increasingly, many activists have started to push the federal government to consider placing a hold on evictions and foreclosures nationwide, not only to protect borrowers in a possible time of need, but also to safeguard public health.
“It's never been more clear that housing is health care,” said Diane Yentel, the president and CEO of the National Low Income Housing Coalition. “The ability for people to self-isolate, self-quarantine in their homes is essential to all of our health, and so I think there's a really important business reason and public health reason and certainly moral reason why big banks and regulators should take this step.”
What is less certain is how a moratorium could be enacted. Some say President Trump has the authority to impose one, while others say the more likely agent would be the Federal Housing Finance Agency or the Department of Housing and Urban Development's Federal Housing Adminstration arm. Still others say it would take an act of Congress.
The calls for special action in the housing sector are among many economic relief ideas circulating in Washington in the face of COVID-19. Some are taking shape. Trump on Friday declared the virus outbreak a national emergency and announced a series of emergency steps, including the suspension of interest payments on federal student loans.
The FHFA said that given that the president has declared a national emergency, it is reviewing which disaster powers held by the government-sponsored enterprises Fannie Mae and Freddie Mac could be used to help homeowners in the current situation.
"In the interim, borrowers whose ability to pay their mortgage is impacted by the coronavirus should reach out to their servicers about forbearance options that are available currently,” the FHFA said in a statement.
FHA did not respond to a request for comment on the record for this story.
Fannie, Freddie and the FHA reminded borrowers and servicers this week that loan forbearance is an option for those facing difficulty making their monthly payments because of the coronavirus, and federal banking regulators have also pledged to work with affected financial institutions and their customers.
That guidance was an “important first step,” said David Dworkin, president and CEO of the National Housing Conference.
“We don't need servicers buried in bureaucracy approving modifications or forbearance in such a fast-moving crisis,” he said.
But a blanket national halt to evictions and foreclosures would help policymakers get ahead of any uptick in delinquencies and defaults, and avoid putting the government in the position of “reacting to it and playing catch-up,” said Jesse Van Tol, the CEO of the National Community Reinvestment Coalition.
“One of the reasons that a moratorium rather than some more nuanced guidance makes sense is this is an unknown crisis that could get really bad, and to be dealing with people getting evicted and kicked out of their homes in the midst of a public health crisis I think would add another layer of crisis on top of whatever we're dealing with next,” he said.
Another reason for more assertive action, Dworkin said, is that borrowers may not be aware that lenders are encouraged to offer hardship forbearance as an option. He suggested that servicers contact delinquent borrowers to ask why any payments are late, and if the answer involves the virus, that loan payments temporarily be waived.
“That enhances the risk of the moral hazard that people may take advantage of it, but so many people could be impacted by this that I think that's a pretty small risk,” Dworkin said. “Communication is going to be very important, and they need to be thinking about how they, through their servicers, are going to be proactively communicating with people who can’t pay their mortgages.”
There are also considerations to be made not only about the borrowers themselves facing eviction, but also communities as a whole where officials are encouraging social distancing and self-quarantine, said Alieza Durana, a spokeswoman for the Eviction Lab at Princeton University.
“Under normal circumstances, eviction is hugely disruptive to individual and family well-being generally, but in the context of a pandemic, the effects are even more dramatic, both for individuals and families, but also for society at large as we worry about the spread of the virus itself,” she said.
Sens. Elizabeth Warren, D-Mass., and Jeff Merkley, D-Ore., have joined the chorus of those calling for the White House to temporarily bar foreclosures and evictions.
“A national moratorium is urgently needed to mitigate the hardship confronting many American workers who have already seen or will soon experience an unexpected and significant drop in income due to reduced consumer spending on tourism, travel, hospitality, entertainment and many other service sectors,” they said in a letter sent Thursday to Trump.
Meanwhile, House Financial Services Committee members Alexandria Ocasio-Cortez, D-N.Y., and Ayanna Pressley, D-Mass., took to Twitter to urge mortgage relief for affected borrowers.
While there is no precedent for the government forgiving mortgage payments or taking related actions because of the threat of a pandemic, it has been done previously after natural disasters for borrowers who may have been affected.
“Considering that novel coronavirus has already proven to be equally or more disruptive, deadly and widespread, the precedent for weather-related natural disasters should inform our decision to restrict foreclosures and evictions in response to the novel coronavirus pandemic,” wrote Warren and Merkley.
Congress could also pass legislation, but that may be more difficult to accomplish, said Yentel, who urged lenders and the GSEs to cut homeowners and landlords a break during the crisis.
“I think that's probably harder to do, which is why I think it's so important that Fannie and Freddie and the banks show the leadership themselves without being required to, because they've done it before,” she said. “I don't see why they wouldn't do it now.”
Although halting mortgage payments and foreclosures would undoubtedly be costly for lenders and servicers, it could pay to be prepared, said Dworkin.
“This is going to be expensive, but not addressing it is going to be much more expensive,” he said.
Fortunately, mortgage servicers are generally “better prepared to deal with a significant crisis” than in the lead-up to the financial crisis, said Van Tol. But if there is anything to be learned from 2008, it is that being proactive is better than being reactive, he added.
“I think it makes sense to get ahead of this and to have in place greater flexibility on the front end and to not delay and wait until it gets so bad,” he said. “I think that's what happened in the foreclosure crisis in the Great Recession. I certainly hope that this is not as bad as that, but I'm looking for something more significant than just guidance saying servicers have flexibility.”