Forbearance of Mortgage Payments during the Covid-19 Emergency

Forbearance of Mortgage Payments during the Covid-19 Emergency

OANA has reached out to our congressional representatives concerning the forbearance of mortgage payments during the Covid-19 emergency.

The federal government, who has jurisdiction of loans backed by Fanny and Freddy, advised banks to cease foreclosures upon non-payment of mortgages as well as affiliated late fees. They also demanded that no late payments be reported to credit agencies. However, they still need to address how such defaulted loans will be made whole again, to avoid of an avalanche of foreclosures and tenant displacements.

My bank, Wells Fargo, has complied with the above. However, their initial guidance was that the entire past due balance must be paid as soon as the forbearance period is over. No landlord should avail themselves of this program under these conditions. If the landlord’s tenants do not make due on their rent payments, this would force the landlord to carry the entire burden with no help from any other parties. It could put their whole loan in jeopardy.

Recently Wells Fargo clarified their initial statement. The revised advice states that there may be a possibility of a loan modification, like moving the missing payments to the end of the loan or reducing the interest rate. Nevertheless, it will be up to the banks’ individual underwriter who will assess, qualify and conclude. There will be no guarantees or assurances of any leniency, disregarding the prior standing of a landlord/mortgagor.

A request for landlords to be the sole absorbent of missing rent payments may lead to a spike in foreclosures, and increased efforts to replace illiquid renters with solvent ones. It is important to note that this will increase housing vulnerability for tenants also. Landlords will be incentivized, through no fault of their own, to replace underperforming tenants in order to make sure they have income to service their mortgages. No one wins!

This would lead inevitably to the type of mortgage/housing debacle akin to what led to the financial crisis of 2008 and the respective consequences. As long as banks are asking for full balance repayment of mortgages, any rent deferrals or relief will equally have to be made whole again.

During the financial crisis, the Federal Government backed modification programs which allowed the banks to guarantee that past-due mortgage payments could be “Modified:” to allow repayment without foreclosing on properties. This was often done in 2009 by reducing interest rates and expanding the length of the loan.

This situation must be addressed asap! Landlords have to decide now how they will handle rent and mortgage receivables and payments. We ask that the Federal Government guarantee that loans backed by Fanny and Freddy have a government guarantee of either a loan modification or movement of missing payments to the end of the loan. They need to take the decision out of the hands of the Banks underwriters. Mortgage holders must be assured they will be made whole so they can pass the benefits to the tenants.

Quote from Congresswoman Carolyn Maloney office:

“Congresswoman Maloney successfully pushed the administration to implement a nationwide moratorium on foreclosures and evictions on federally backed and GSE mortgages. Unfortunately, the rental assistance provisions in the House Democrats’ COVID-19 response legislation did not make the final bill, but Congresswoman Maloney is fighting to include assistance for renters and homeowners in subsequent stimulus packages. The work that Congress must do to address the economic crisis caused by COVID-19 is only just beginning.”

Quote from Congresswoman Alexandria Ocasio Cortez:

“Congress’ work is not done. We still need a nationwide moratorium on commercial and residential rent, alongside a loan and payment modification guarantee to ensure no one enters new cycles of poverty or is displaced due to COVID-19. Working with Congresswoman Maloney, among others in the NYC delegation and colleagues in the House, I’ll continue to advocate for more housing related-relief for renters and owners in the next stimulus and ensure the needs of my constituents are not forgotten.”

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Richard Khuzami is the President of OANA. /// Johannes Schmidt is a risk management expert, President/founder of Alphaporting and a former Wall Street banker. Mr. Schmidt is a member of the OANA Advisory Board.