While the public sector has been capturing the limelight for its massive effort to lead the nation through this crisis, individuals, communities and corporations have also been working tirelessly on our behalf. Here are just a few examples of noteworthy initiatives in the private sector:
- Almost 1 million job openings announced by companies including Amazon, CVS, Walmart, Pepsico, Walgreens, CVS, Instacart, Dollar General, Domino’s, and Kroger.
- Private individual and foundation donations of almost $8 billion to help those in need.
- Over 100,000 medical volunteers in the tri-state area alone.
We will long remember the generosity and courage we are seeing today.
Individuals & Families – Mortgage Relief: Last week, we focused on the $600 billion in cash assistance to individuals through direct cash and unemployment insurance. Link available here in case you missed it or would like to refresh. It is now being reported that 50 million Americans received their direct cash deposits on April 9.
This week, we dive into residential mortgage forbearance, an important component of the CARES Act that should provide meaningful payment relief to homeowners as well as renters. The economic benefit of this relief is not captured in the $2 trillion CARES Act. The Mortgage Bankers Association (MBA) predicts that forbearance could end up in the $75 – 100 billion range. Based on information in the public domain, forbearance requests under CARES in March increased to 2.7% from a trend average of 0.25% (i.e., about 10x).
- Mortgage Forbearance: The deferral or delay of payment of a contractual obligation, in whole or in part, until a future time. It is not a grant or loan forgiveness. The credit obligation must still be repaid.
- CARES Act Eligibility:
- The mortgage must be a federally-backed (government-sponsored) mortgage. Note that about 70% of all residential mortgages in the U.S. are federally-backed, with about 46% through Fannie & Freddie, and approximately 23% through the Federal Housing Administration & Veterans Affairs.
- Proof of being impacted by Covid-19.
- CARES Act Mandate:
- Up to 1 year of forbearance for borrowers with mortgages on single-family homes.
- Up to 90 days of forbearance for borrowers with mortgages on multi-family dwellings (i.e., a landlord with a federally backed mortgage on an apartment building). The landlord cannot evict, initiate eviction, or charge late fees to tenants for the duration of a forbearance period.
- A moratorium on foreclosures for a 60-day period beginning on March 18, 2020.
- No impact on credit scores for mortgage forbearance.
- Repayment Options: Once out of forbearance, deferred mortgage amounts can be paid according to a variety of options.
Many rental apartment operators are following the relief playbook in the CARES Act. Disclosures from the publicly-listed apartment real-estate investment trusts – Avalon Bay, Equity Residential, Camden Properties, Essex, and UDR – reveal a commitment to extending relief to their tenants through a variety of options, including repayment plans, eviction moratoria, and freezes on rent increases.
What this means for the distressed homeowner and renter that meets the eligibility criteria: Mandated payment relief is being directed to both renters and owners, who on average have monthly net income of $4,500 after tax. Based on a median housing cost in the US of ~$1,000 per month, this mortgage and rent deferral equates to 22% of this household’s monthly net income. This financial relief is also paired with assurances of no eviction or negative credit bureau reports for those borrowers meeting eligibility criteria.
Small Business: Relief to small businesses are being directed predominantly through the $350 billion Paycheck Protection Program (“PPP”) authorized by the CARES Act and being administered by the Small Business Administration (“SBA”). Despite the program’s messy launch, about $50 billion has been lent through the SBA to about 178,000 small businesses through April 7. The Fed has also stepped in to backstop certain credit issued under the program. News from Washington, D.C. suggests that the program will likely get up-sized by at least $250 billion. Monies lent under the PPP must be used to cover payroll (at least 75% of loan proceeds) and critical operating expenses like rent and utilities (no more than 25% of loan proceeds). We hope to discuss this topic in more detail next week.
As of this writing, Austria, Italy, Germany, Denmark, and the Czech Republic, among others, are considering the first steps towards easing isolation and distancing policies in the coming weeks. Wuhan has reopened, and Shanghai is reporting rising economic and social activity. In the U.S., hard-hit epicenters like New York City have started to see hospitalizations flatten. Based on these data and trends, early and aggressive social distancing – and collective responsibility – seems to have worked to make us contagion endpoints, and thereby helped render as low likelihood the apocalyptic worst-case scenarios forecast at the outset.
In our first weekly published on March 20, we described humankind’s shared journey through a dark and long tunnel with some rays of light flickering in the distance. Based on this past week’s observations, the light has grown stronger and comfortingly closer.
As always, and particularly during this time of uncertainty, we appreciate your support and welcome your questions and comments.
We wish you a healthy weekend.