With millions of Americans out of work and struggling to pay their rent, the federal government is offering landlords a break in the hopes it will avert a tidal wave of evictions.
The Federal Housing Finance Agency announced on Monday that landlords with government-backed mortgages are eligible for an additional three months of mortgage forbearance—provided they don’t evict tenants who can’t pay their rent during that time. The initial forbearance period, in which building owners suffering coronavirus-related hardships could put off their mortgage payments, was about to expire for those who had sought assistance at the start of the pandemic. The extension is designed to trickle down to renters by taking the pressure off landlords who are on the hook for their own monthly mortgage payments.
The forbearance is only for owners of multifamily properties of five or more units who have mortgages backed by Fannie Mae and Freddie Mac. Landlords must be facing financial hardship due to the coronavirus to receive the assistance.
“This is essentially a win-win for the landlord and the tenant,” says George Ratiu, senior economist with realtor.com®. “Landlords were still expected to pay down their mortgages without revenue [aka rent checks] coming in. What we were looking at was a potential mass wave of evictions as the prior forbearance period was coming to an end. We still have over 20 million Americans drawing unemployment.”
This could potentially help about 4.2 million renters living in more than 27,000 properties that would qualify for this temporary relief, according to Freddie Mac. That’s a little less than a tenth of the almost 44 million renter households in the U.S. in 2018, according to Harvard University’s Joint Center for Housing Studies. However, the rest of the mortgage market takes cues from the actions that Fannie Mae and Freddie Mac take, so the impact is potentially even greater.
“The multifamily mortgage forbearance extension announced today will help renters stay in their homes and help property owners retain their properties,” FHFA Director Mark Calabria said in a statement.
Once the forbearance is up, landlords can apply to have up to two years to make up the missed mortgage payments. During that time, the building owners must extend some protections to their tenants. Renters must be given at least a 30-day notice to leave the property, and they can’t be charged fees for late or missed rent payments. In addition, renters will be allowed to make up missed payments over time and not be required to hand over a lump sum—an impossibility for many struggling tenants.
“These additional relief options will provide more flexibility to borrowers and extend tenant protections for renters who also continue to struggle with the economic effects of the pandemic,” Debby Jenkins, executive vice president and head of Freddie Mac Multifamily, said in a statement.
Renters aren’t as well-positioned to weather a recession as many homeowners. They made a median $41,515 in 2017—compared with $77,523 for homeowner households, according to a National Multifamily Housing Council report.
Meanwhile, many tenants work in lower-wage industries that have been hard-hit by the pandemic, such as tourism and hospitality, food service, and retail. With a 13.3% unemployment rate in May, not all of these folks have gone back to work yet. That makes coming up with the rent money each month a challenge.
“This is the best and fastest way that the government can provide relief to renters,” says Ratiu. “It allows the property owner to avoid taking a loss.”