Recently the Federal Housing Finance Administration (FHFA) — conservator of Fannie Mae and Freddie Mac — extended the moratorium for both evictions and foreclosures until the end of the year. Many homeowners breathed a sigh of relief.
Indeed, over the past few months the number of borrowers with active forbearances has declined. But that’s no reason for optimism. The more serious matter is how many homeowners are now delinquent. By the end of 2020, several million borrowers who have received mortgage forbearance will have gone nine months without making a mortgage payment.
What impact will this have on U.S. housing and mortgage markets? Let’s start with FHA-insured loans. According to HUD’s July 2020 “Neighborhood Watch” report, 17% of 8 million insured mortgages are now delinquent. This percentage includes mortgages in forbearance as well as those not in forbearance. Hard-hit metropolitan areas include New York City with 27.2%, Miami with 24.4% and Atlanta with 21%.
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Second, small landlords have been devastated by the lockdowns. The results of the latest survey published by the National Association of Independent Landlords (NAIL) revealed that the percentage of respondents who received a full rent payment from their tenants plunged to 55% in June from 83% in February. Almost 20% had vacant rental properties due to COVID-19, while 60% were in a financial position to offer some kind of payment plan for tenants to pay back rent.
Keep in mind that there are at least 15 million properties owned by these small landlords nationwide. Many were in a precarious financial situation even before the lockdowns began. Unless the job situation of their tenants improves, millions of these investors could be wiped out and compelled to throw their properties onto the market. Sooner or later, the piper must be paid.
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