As a Certified Estate Specialist, and a Real Estate Broker, I can always tell when there is an elephant in the room. This one gets cheers each time the federal government pushes mortgage and rent forbearance further down the calendar, there will come a time when the party will be over, and the foreclosures will begin.
The Federal Housing Finance Agency’s decision to have Fannie Mae and Freddie Mac extend a freeze on foreclosures of single-family homes and residential evictions was not unexpected but leads to additional problems.
Clearly many homeowners still need assistance but unsurprisingly express concern that the extension just delays inevitable pain. The underlying problem of joblessness and the lack of on site work in many different fields have many people in North Carolina seeking new jobs just to put food on the table.
The moratorium on foreclosures of occupied homes financed through government-sponsored enterprises (GSEs) such as Fannie and Freddie began in March as the COVID-19 pandemic began to shake the U.S. economy. It has now been extended until “at least January 31, 2021” according to a news release from FHFA.
Another extension to the moratorium only postpones the negative impact the foreclosures will cause as unpaid bills lead to higher levels of default. As more defaults get queued in the system, there is less of a chance for consumers go get back on their feet, as forbearance is likely to end sooner than the jobs return to the market.
A Census Bureau survey in September shows 9% of 48 million homeowners are behind on their mortgage payments. The Mortgage Bankers Association cites that 5.58% of mortgages are in formal forbearance as of November 22. And as recent as last week, there was concern over commercial real estate defaults, already stressing banks.
The problem does not stop there, many who were once living paycheck to paycheck are now going to the food banks in order to get their meals. The elephant in the room is growing larger without any redress. Continuing with the moratoriums indefinitely will significantly disrupt future economic performances as home payoff and credit card balances grow.
As Congress continues to be divisive, Credit Cards continue to get swiped for essentials with 36% interest rates, with penalties and other charges, it is likely to be the first domino to fall on the way to a complete economic breakdown. This in turn will lead to more debt issues and bankruptcy increases. The federal government will need to address the laws from the top to the bottom, or the fallout will be grim.
The lack of certainly on when the job market opens up and foreclosures may proceed also has implications for landlords of residential rental properties, many of whom cannot partake in forbearance and as some have found. Many still have to pay their mortgages every month even if their tenants do not have to pay due to the pandemic. As income continues to decline, so does the availability of funds for property maintenance which can also eventually lead to displacement of tenants, or even foreclosure of the rental properties completely.
Shut downs and quarantines, the underlying reason for the moratoriums, are also affecting the commercial sector, including owners of hotel, restaurant and retail properties. Those who are severely impacted are the once popular mega-malls, who have given 3-10 days’ notice of their tenants that they have to close and move out. The ongoing impact the job market continues to become more dire, especially in the hospitality and tourism sectors. As more people flock to the Information Technology Sector as a safe haven, it is creating a log jam of hundreds of individuals for a single position.
Policymakers will have to contend with the fallout of the moratorium even as the next natural wave of defaulting loans forms. The prospect of COVID-19 vaccines could clarify when the moratorium will end allowing tenants and property owners to begin plans for the next step. However with the ongoing politicization of the vaccine and it’s effects, there may be no answer in immediate sight that will allow for a stable return to work.
Matt Price is the CEO of Price Auctions and Estates in Fuquay Varina, NC. For more information please call 919-614-6288 or email firstname.lastname@example.org. Special thanks to Rich Kruse who contributed to the article.