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Housing market faces its next crisis as May rent and mortgages come due

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Danny Catalanotto, an organist for St. Mary's Catholic Church in Rockville, Maryland, has not worked since the coronavirus shut down the economy. He called his mortgage servicer, which told him he could skip his next few mortgage payments but would have to catch up with a payment later. Washington Post photo by Jonathan Newton

For 13 years, Danny Catalanotto paid the more-than-$2,000 mortgage on his Bowie, Maryland, home on time every month. When work as a church organist dried up in mid-March, Catalanotto says, he expected his mortgage company to offer help.

Instead, a large Texas-based mortgage company called Mr. Cooper said Catalanotto could defer his monthly payments but would have to pay them all back in one lump sum.

“It could be $8,000 to $10,000 by then. How do you come up with that if you’ve been out of work?” he said.

While aggressive federal and state intervention and temporary corporate measures have prevented a surge in evictions and foreclosures, the housing market has fallen into a crisis that threatens the ability of millions of Americans to stay in their homes even if the novel-coronavirus pandemic eases in the coming months.

The speed and reach of the disruption probably will pit landlords and mortgage companies against homeowners and renters, with each side claiming it needs more assistance and fueling calls for billions in new aid for the housing sector.

The tension could explode this week as mortgage and rental payments come due for millions of Americans who have lost their jobs as the coronavirus has shuttered the U.S. economy. This is especially true in high-priced regions where stimulus payments of $1,200 per adult, for those making under $75,000 a year, are unlikely to cover more than a month of rent or mortgage payments, if that.

At least 3.8 million homeowners have sought mortgage relief and were not making their payments by the end of April, a 2,400% increase from early March, according to Black Knight, a mortgage technology and data provider. That number probably will increase drastically this week as the country’s unemployment rate hits levels unseen since the Great Recession, lenders and housing advocates say.

The problems facing America’s 40 million households in rentals are potentially more dire, sparking calls from advocates for rent strikes across the country and a $100 billion bailout fund. Nearly 10% of renters didn’t pay in April compared with 5% during a typical month, and May is expected to be worse, according to industry data. Most renters are protected by federal and state eviction moratoriums but will probably face a cash crunch once those orders expire in a few months and they’re asked to make back payments.

“There is no doubt that May will be worse, and it will be hardest for lowest-income renters,” said Diane Yentel, chief executive of the National Low Income Housing Coalition, an advocacy group.

From New York to Philadelphia and across the country, tenant and community groups have called for a government-imposed halt to rent payments. The #CancelRent hashtag has trended online in recent weeks with the support of Rep. Alexandria Ocasio-Cortez, D-N.Y.

That has some landlords, who say they are suffering too, on edge. Steve Irish, who owns 11 rental properties in four states, is preparing for the worst. While many tenants in North Carolina have been able to keep up, those in Michigan, one of the states hit hardest by the coronavirus, are struggling. Only one of his six renters in Michigan paid full rent last month. One made a partial payment, $160.

“I am expecting people will be less and less able to pay as time goes on,” Irish said.

Irish estimates that he could carry the cost of the missed rent for a few months, including covering homeowner association fees and maintenance costs. But floating renters could become unaffordable this summer, when he will have to pay property taxes in multiple states, Irish said.

“I am trying to be as helpful as I can be and still recover over time. I understand this is a crisis,” Irish said. But “this is my retirement money.”

This crisis will stand out from the Great Recession a decade ago for its speed and reach, industry officials say. During the global financial crisis, the pain was focused largely on borrowers with shoddy mortgages or overvalued homes and unfolded over several years, housing experts say. This time the pain will be felt more broadly, particularly among renters who are more likely to have the service sector and hospitality jobs most affected by the crisis. It potentially will take months, not years, to surpass the number of homeowners in distress there were a decade ago.

“The last foreclosure crisis was a slow-moving train; the impact in terms of people was over the course of several years,” said Jesse Van Tol, chief executive of the National Community Reinvestment Coalition, a research and advocacy coalition of 600 community organizations. “Whereas the current moment, it’s all happening pretty quickly, 25 million, 30 million unemployed in a manner of a few weeks.”

Home prices in some markets may fall, but not as far as they did a decade ago – closer to 5% rather than 30%, said Mark Zandi, chief economist for Moody’s Analytics. The homeowners in trouble have better credit scores and more equity in their homes than those who lost their homes a decade ago and are more likely to be able to rebound, he said.

Still, 1.5 million to 2 million homeowners could lose their homes to foreclosure due to the crisis, according to Zandi. That is fewer than during the housing crisis but two to three times existing foreclosure rates, he said.

Mortgage lenders say they are helping as many homeowners as they can, allowing millions to postpone their payments without incurring a penalty and preparing to take billions in losses. Banks are aggressively attempting to avoid the criticisms that plagued their response to the last crisis. Bank of America and JPMorgan Chase have set up online portals for customers to seek forbearance on their mortgage loans. Many have also dropped the extensive paperwork requirements that bogged down the response last time.

But some mortgage servicers warn that the cost of widespread mortgage relief, known as forbearance, could push them to brink of failure and are asking for federal help. If 25% of borrowers do not make their mortgage payments, the industry has said it could need nearly $40 billion in federal help over the next three months and $100 billion over nine months.

The number of homeowners seeking assistance probably will increase in coming days as May due dates come closer, said Mike Fratantoni, chief economist for the Mortgage Bankers Association. “Whether we meet or exceed those numbers [from the global financial crisis] depends on how long the shutdowns are going to last,” he said.

But the help mortgage lenders are offering to homeowners isn’t uniform, and housing advocates worry that it doesn’t go far enough. Some are particularly concerned about what happens when a homeowner’s forbearance ends. Homeowners say they are being asked to make lump-sum payments they cannot afford or are being encouraged to refinance their loans, which comes with thousands of dollars in new fees, advocates say.

For Catalanotto, the organist from Maryland, the solution should be clear. His mortgage company, Mr. Cooper, should tack his missed payments on to the end of his mortgage, instead of requiring him to pay it back all at once, he said. “The money we lose during the crisis is lost forever. We will never get that back. I just don’t know what they expect us to do,” he said. “Regular people are paying the cost of this crisis.”

In a statement, Mr. Cooper said the type of mortgage relief available depends on a homeowner’s loan. Mr. Cooper acts as a middle man between the homeowner and the owner of the loan, collecting payments and servicing the mortgage. “We know this is a confusing and incredibly stressful time for many of our customers, and we are dedicated to supporting them and finding solutions for their unique situations as we face the impacts of this pandemic together,” the company said in a statement.

The mortgage industry says that lump-sum payments are just one option available to homeowners but that it is willing to negotiate other repayment plans borrowers can afford. Loans backed by the giant mortgage companies Fannie Mae and Freddie Mac allow for 12 months of forbearance that can be added to the end of a loan. But some mortgages limit what kind of help borrowers qualify for, particularly if they have already missed a payment, industry officials say.

Forbearance programs were built to respond to natural disasters such as hurricanes and tornadoes, not a nationwide public emergency that involves many more people all across the country, industry officials say.

“There will be a variety of repayment options available, which will differ depending on several factors,” Bob Broeksmit, chief executive of the Mortgage Bankers Association, said in a statement. “That is why borrowers must contact their mortgage servicer and have a conversation on the best approach for their particular situation.”

Renters, meanwhile, say they face greater odds than homeowners and have received less help. Some may be able to use the $1,200 stimulus payments from the federal government or $600 in enhanced unemployment benefits to cover their housing costs. But that will not be enough for everyone, advocates say. The stimulus payments have not arrived in time for millions of renters to pay May rent, and there are massive backlogs of jobless claims across the country, they say.

Annette Rise, a Miami hostess and event planner, panicked when she didn’t have the money to pay her April rent. The landlord gave her until the middle of the month to catch up and then put a notice on her apartment door. “Then I really freaked out,” she said.

The landlord has agreed to wait until Rise receives the $1,200 stimulus check that should be coming in the mail any day, she says. But then Rise will face another decision: Using the stimulus check to cover her entire $1,200-a-month rent would leave her nothing for living expenses. She is hoping the landlord will accept a partial payment, maybe $800. “I just need to leave a little for food,” she said.

As for May rent? “I have no idea, to be honest,” said Rise.

Various plans have emerged to address troubled renters, including a proposal by some Democrats that $100 billion in rental assistance be included in the next stimulus package. The Urban Institute has outlined several approaches and estimated that if 20% of renters needed help, three months of assistance would cost $24 billion.

The National Rental Home Council, which represents landlords of single-family homes, says landlords should be reimbursed by the government when tenants miss rent payments due to the coronavirus. The renters would then pay back the money through their tax returns under the industry plan.

Without national renter assistance, once eviction moratoriums across the country are lifted many renters will struggle to make up their missed payments and be left heavily in debt or facing eviction, said Yentel of the National Low Income Housing Coalition. “We have to make sure we are not creating a financial cliff once those moratoriums are lifted,” she said.

Anli Llego of Colorado is among those plunging into debt amid the coronavirus outbreak. The medical massage therapist is still waiting for her stimulus check and says she’s too intimidated to apply for unemployment insurance. “I just can’t face that disappointment,” she said of her fear of not qualifying and the complicated application process.

Llego said she could seek financial support from her family but considers that a last resort. Instead, she is charging rent, about $1,000 a month, on credit cards and watching her once-stellar credit score, 820, fall. “I know I have to do something because I can’t live on my credit cards forever,” Llego said.