Victor J. Blue/Bloomberg

Because of coronavirus, millions of tenants won’t be able to write rent checks. But calls for a rent holiday often ignore the longer-term economic effects.

Millions of Americans will struggle to pay their rent on April 1. Efforts to flatten the curve of the coronavirus pandemic have delivered a hammer blow to the economy, and for the second straight week, the number of Americans filing for unemployment is likely to be staggering. Projections for new jobless claims for the last week of March run as high as 3.5 million, which would shatter the record set the week before. The New York Times estimates that 40% of renters in the hard-hit five boroughs of NYC won’t be writing rent checks this week.

Leaders are scrambling to contain the fallout for renters and homeowners. Congress and several federal agencies have introduced moratoriums on evictions and foreclosures for people living in homes backed by the government. Cities and state leaders have announced a number of measures to help keep people in their homes during the crisis, too. New York Mayor Bill de Blasio floated a proposal on Monday, for example, to let New Yorkers use their existing security deposits to pay their rent on April 1.

Yet tenants, advocates, and even some landlords would like to see the government go much further. On the left, activists are mobilizing for a rent boycott, on the straightforward grounds that millions of people cannot work. It’s not just anti-capitalist organizers declaring a rent strike, either. ParentsTogether, a national parent-led group, is calling on Congress to suspend rent, mortgage, and utility payments for the duration.

“Families are drowning,” says Justin Ruben, co-director of ParentsTogether. “Millions have lost income and are already facing tradeoffs about whether to pay for rent, utilities, or purchase necessities like food and diapers.”

With the nation in dire straits — and with relief from Congress still distant on the horizon, and a reprieve from the virus nowhere in sight — why not just nix the rent altogether? For that matter, what about scuppering the mortgage, too, to help homeowners and make sure landlords aren’t ultimately responsible for bearing the cost of the pandemic?

According to the ParentsTogether’s surveys, half of American families are already sacrificing basic necessities in order to make their rent or mortgage payments. A temporary government reprieve from rent and mortgage payments (sometimes called a holiday or a jubilee) would certainly ease the weight of the pandemic on these households. Calls for a rent holiday follow another proposal to wipe the slates clean in order to keep people from falling into poverty as a result of the pandemic — a debt jubilee.  

But other experts warn that any sustained suspension of rent and mortgage payments would have grave consequences for the broader economy. The buck doesn’t stop with landlords.

”Those mortgages are often securitized,” says Carol Galante, faculty director for the Terner Center for Housing Innovation at the University of California-Berkeley. “They’re packaged up into bonds and they’re sold as investments, and those investors are expecting a certain interest payment off of those securities on an ongoing basis. If they don’t get those, then those investors suffer.”

Yeah, but this is a life-or-death, full-blown disaster situation — sorry, investors, but that’s capitalism, right?

“So you say, well, who cares about the investors?” Galante says. “But the fact is that many of those investors are things like pension funds.” And those pension funds support teachers, first responders, and others in ways that may not be wholly apparent every time tenants or homeowners write out their rent and mortgage checks.

Negative impacts of a pandemic pause on rents could play out for years to come. If the government were to declare a rent jubilee, it might discourage investors from buying mortgage-backed securities, since they might fear that they could lose out in the event of another rent jubilee. (Yes, these are the same securitized mortgages that contributed to economic collapse in the last financial crisis.) Insurance companies and pension funds are some of the primary investors in mortgage bonds — entities that everyday people have an interest in keeping solvent.

“Oftentimes policies look good on their face, but there are effects that stem throughout the whole society, and can even hurt the people who are benefiting in the short term by the jubilee,” says Kathleen Engel, a research professor at law at Suffolk University.

Ultimately, Fannie Mae and Freddie Mac cover the default risk for most mortgage-backed securities, so the exposure for pension funds is likely minimal, as Dan Immergluck and Amine Ouazad have noted. And the Federal Reserve has pledged to buy hundreds of billions of dollars in mortgage-backed bonds with an essentially unlimited emergency purse in order to rescue the market. Yet this move has already triggered a flood of margin calls, a second-order effect that mortgage bankers say could lay waste to their industry. So it’s not clear yet where the fallout lands in a scenario in which some 15 million borrowers default on their loans.

“I would pause all evictions and foreclosures, which of course means distressed owners and renters who are unable to pay will be able to stop paying without being kicked out during an emergency,” says Alex Armlovich, a fellow at the Manhattan Institute. “I’m more skeptical of the merits of a total rent ‘jubilee’ on policy and administrability grounds.”

“The main focus,” Armlovich adds, “should be on restoring cash-flow to laid off workers through paid leave, enhanced unemployment insurance, and checks from the Treasury.”

But let’s say that the longer-term repercussions of gambling with the retirement security of millions of Americans are considered less dire than the immediate-term risk of mass homelessness during a pandemic. Even if Congress were willing to roll the dice and declare a rent jubilee — by passing an edict that we’re not doing rent or mortgage payments for the foreseeable future — it’s not clear how such an action would be legal. An edict on private loans would almost certainly be ruled an unconstitutional taking under the Fifth Amendment. So far, the federal government has put restrictions on evictions and foreclosures for only those homes that are backed by federal mortgages. Specifically, for rental properties secured by federally backed mortgages, the government has suspended evictions for at least 150 days (a 120-day moratorium period plus 30 days’ notice).

For renters, these actions only go so far. Between the CARES Act passed by Congress and interventions by the U.S. Department of Housing and Urban Development and the Federal Housing Finance Agency, the government has delayed evictions and foreclosures for about 42% of single-family mortgages. Most of those are for homes occupied by the owners. There’s at least 2.3 million multi-family properties covered by Fannie Mae and Freddie Mac, and renters in those buildings would be covered by the eviction moratorium, too. That leaves a gap for tens of millions of renters living in properties out of reach of these federal protections.

“HUD doesn’t have the authority to stop private landlords from evicting their tenants,” says Jenny Schuetz, a fellow for the Metropolitan Policy Program at the Brookings Institution. “HUD has limited authority over most of the rental market. It doesn’t have the tools to do this.”

Of course, it’s hard for renters to know whether their landlords have mortgages backed by the federal government. (It’s difficult for owners to always know, too, but not impossible: The National Consumer Law Center has published guidelines for determining whether a loan is owned or insured by the federal government.) Most renters are going to find out that the federal rules don’t apply to them, although a state or local government moratorium might.

Even if a renter can’t be evicted thanks to new legal coronavirus protections, the rent is still very much due. While landlords may not be able to evict tenants who can’t pay the rent because they aren’t working — and indeed, landlords may not want to evict anyone for payment reasons for the time being, given how hard it might be to find another tenant — a reckoning is inevitable.

“A moratorium holds the clock,” says Marion McFadden, senior vice president of public policy at Enterprise Community Partners, an affordable housing development nonprofit. “If you don’t pay your money when it’s due now, there will be no consequences immediately. But the consequences will come. For most families, they’re not going to have an opportunity to make up their lost wages. There’s not going to be a moment when you can suddenly make more than you were earning before.”

Ultimately, a rent jubilee may not be the parachute that renters are hoping for. That doesn’t help anyone who hasn’t worked in the last three weeks actually write a rent check this week, or the next month, for however long the government is telling people not to go to work. While the nation might not ultimately sanction a rent holiday, we may have one on our hands anyway.

The looming rent apocalypse has already wreaked havoc in the mortgage bond market. Funds that own bonds backed by mortgages are selling billions in assets to raise cash to satisfy redemptions of investors selling their investments. Tom Barrack, a billionaire real estate investor (and close Trump ally), is raising alarms that the commercial mortgage market could collapse.

Now mortgage investors are calling for the government to rescue them. Corporate chains such as Subway and Mattress Firm have already let their landlords know that the rent will be reduced or delayed. This is all to say that the catastrophic domino effects that a rent strike could trigger appear to be happening already.

That’s why it’s so important for lawmakers to take action to put money into the hands of the parties in the best position to bail out landlords and bond investors — renters. If renters find a way to pay the rent now, the other dominoes stay up a little longer. “The bottom 25 percent of the wage scale are going to be desperate,” Engel says. “A lot of those workers are working in service industries. They may be more likely to have lost their jobs, and maybe weren’t even making a living wage as it was. They’re going to have to come up with that money. They’re going to go over the cliff.”

She adds, “The response to that is to have more and better federally subsidized housing. But that’s a long-term problem that can’t be solved over the next four months.”

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