Italy Suspends Mortgage Payments—What’s Going on in the U.S.?

Italy Suspends Mortgage Payments—What’s Going on in the U.S.?

5 min read
Phil McAlister

Phil is the founder of The Macro Meets Real Estate Newsletter, a refreshing and entertaining take on real estate investing and financial markets.

A Chicago-area native and real estate investor, Phil’s career has spanned investment banking, commercial lending, and real estate, with extensive transaction experience from multiple sides of a deal.

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Working for a large national sponsor, Phil has been in charge of the underwriting, financial modeling, and valuation of over $6 billion in commercial real estate, including multifamily, medical office, self-storage, hospitality, and senior housing assets. Phil leads a team in evaluating commercial real estate deals nationwide and across multiple strategies including core, core-plus, and value-add, with an occasional ground-up development sprinkled in.

Phil is also involved in evaluating and negotiating multi-million dollar joint ventures with various strategic partners. In addition, Phil has been tasked with evaluating projects in Qualified Opportunity Zones, a new and exciting frontier in commercial real estate.

Phil’s passions include family, football, American history, and real estate investing, in that order. Phil resides in Naperville, Ill., with his wife Kristin and three (sometimes) perfect children, Anna, Ryan and Charlie.

Phil holds a bachelor’s degree in finance and economics from Elmhurst College.

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In an attempt to blunt the economic effects of the coronavirus, the Italian government has suspended all mortgage payments. A similar program has emerged in the United States—but with some unique aspects that are important to understand.

Here is what we know in the U.S. so far.

Coronavirus Assistance for Homeowners in America

The key distinction in terms of mortgage relief is whether or not the federal government (Fannie or Freddie) is backing the mortgage. So far, Fannie and Freddie have suspended foreclosure activity for 60 days. They are also granting mortgage forbearance to owners of multifamily properties in exchange for suspending evictions.

Here is the guidance my firm got from Fannie last week. Remember this is only relating to loans backed by Fannie.

Please note that this was sent before the president signed the CARES Act legislation into law March 27 (which may change these terms).

Related: Dear Tenants—I’m Sending This Letter to My Tenants Today

New Forbearance Guidelines From Fannie

  • Fannie Mae is delegating authority to Lenders to grant forbearances, if requested by a Borrower, for up to 3 months of missed payments if the Lender determines that the relief is warranted or needed due to the impact of the coronavirus national emergency.
  • In return for forbearance, Borrowers must:
    • Repay the missed payments in equal monthly installments over 12 months beginning at the end of the forbearance period.
    • Prepay the amounts owed upon receipt of any business interruption insurance proceeds or other assistance funds.
    • Agree to suspend evictions of tenants who are facing financial hardship due to the current crisis.
    • Permit the affected tenants to repay any missed rent payments over a period of no more than 12 equal monthly installments, without late charges, together with the affected tenant’s regular monthly rent, to the extent permitted by applicable law.
  • The Borrower’s eviction suspension will remain in place for the longer of 3 months or until the borrower has brought its loan current under the repayment terms above.

This is separate and distinct from the legislation just passed by Congress.

I have not poured through the massive legislation yet, but here is a general idea of what that might look like for landlords, according to the attorneys I’ve spoken with.

tax-bill

Again, only for federally backed mortgages, here are some of the major items in the legislation:

  • You’ll be prohibited from filing an eviction for nonpayment for 120 days.
  • You cannot charge late fees.
  • You’ll be prohibited from giving a tenant a 30-day notice to terminate a month-to-month agreement and from evicting a month-to-month tenant by allowing the lease to expire on its own terms.
  • You can still evict for conduct.
  • Rent is still due; you just can’t evict for non-payment for 120 days.

Update: You can read through the full bill, signed into law March 27, here.

It sounds like we will be seeing more agreements between banks/servicers and governments regarding continued relief for non-Fannie/Freddie loans and for renters in general. Nothing is set in stone on that front.

Lenders owning loans not backed by the federal government are also rolling out some relief programs, and I expect further pressure on all of them to continue it.

Analysis and Key Takeaways

First of all, if you are a renter, you need to keep making your rent payments if you can. Your rent is not forgiven or waived; you just can’t be kicked out yet. You will be expected to pay back any rents you’ve missed or risk being evicted.

If you are a landlord with a federally backed mortgage, keep making the payment! Only use the forbearance program if you truly need to due to your tenants missing rent. You’ll be expected to make up for the lost payments in the future, so don’t dig yourself into a hole if you don’t need to.

If you are a landlord with a mortgage not backed by the government, contact your lender to make sure you understand exactly what, if any, programs are available to you. Make sure you understand that this is temporary relief, and you’ll still be expected to pay in full in the future.

Be a Good Human Being

The best thing you can do as a landlord right now is to be proactive with your tenants. Reach out to them—see how they are doing and what you can do to help each other. Coming up with your own plan and agreeing on it will always be better than trying to fit that square peg into the one-size-fits-all round government hole.

Help your tenants understand the legislation and Fannie/Freddie programs and what they mean. Make sure they know that this doesn’t mean they get to live rent-free. It is only a short-term stopgap measure to get through a few months, and they must make good on payments.

Not all landlords are created equally. Some of us may have strong balance sheets and great cash flow. We may be able to help our tenants out, modify their leases, and give them some real relief outside of these government programs.

Conversely, some of us may be relying on our rents to help us get by, as well. We really don’t have much wiggle room to provide our tenants relief.

If you fall into the latter camp, have an honest conversation with your tenant. Let them know that you aren’t a wealthy real estate mogul and that you’d be in a really tight spot too if they didn’t pay.

Related: Stimulus Checks: How Much Will They Be? Who Is Eligible? (Coronavirus Stimulus Package Q&A)

young sad couple at home living room couch calculating monthly expenses worried

Think of yourselves as two human beings trying their best to understand and help each other figure out how to get through a situation that neither of you would prefer to be in. Be creative and think about all the different ways you can work it out:

  • Maybe you could trade some rent relief in exchange for tenants doing some light maintenance work you’d otherwise have to pay for? If they’ve lost their job, maybe they’ve got the time to do that.
  • Perhaps you’ve got a few properties, and you can offer rent relief to an unemployed tenant if they help you at a different property.
  • Maybe you can watch their kids for an afternoon while they go out and apply for new jobs?
  • Maybe they can watch your kids for you while they’re at home if you and your spouse need to work?
  • What about combining two struggling tenants into one unit temporarily, and re-leasing the other unit? Not a perfect scenario, but it beats the hell out of putting someone on the street.
  • What about letting the single mom tenant and her kids move into your basement and pay half their rent, while you list the unit at a low price for someone else?

In times of crisis, ingenuity, creativity, and compassion are the key factors that can turn the tide.

Remember, we are in a fight right now. This is not a boxing match, either. This is a grimy, bloody, nasty street fight. This is a scratch and claw, life or death battle.

And it’s not a fight with each other. Every human is on your side. It’s a fight against a virus, an economic collapse, joblessness, and fear.

It’s time to start accepting some harsh realities and thinking differently. Most of us have never been in a fight like this before, but I promise you it’s a fight we’re going to win.

Band together, help each other, and fight with every resource at your disposal so that we can all come out of this thing on top. With every muscle in your body and every breath in your lungs, fight. Don’t ever give up.

Don’t ever give up.

Don’t ever give up.

I’ll see you on the other side of this thing.

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What is your situation as a tenant or landlord? Will you be able to make payment? If not, how are you as a tenant or landlord working through this?

Share below in the comment section.