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Landlords, tenants face financial strain amid coronavirus

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Mark Calabria, Federal Housing Finance Agency Director, joins Yahoo Finance’s Zack Guzman and Kristin Myers to discuss how the agency is helping support landlords and tenants during the coronavirus outbreak, as many Americans are filing for unemployment.

Video Transcript

ZACK GUZMAN: Meantime, we're also addressing what a lot of Americans are worried about when it comes to paying rent. Potentially, you're a renter or a homeowner, mortgage payments on top of minds across the country, as more and more Americans brace for what could be coming in terms of job losses.

And, right now, the Federal Housing Finance Agency says that Fannie and Freddie Mac will offer owners of multifamily properties forbearance relief on their mortgages on condition that they suspend all eviction of renters who are unable to pay because of the fallout we're seeing in the growing coronavirus crisis. We're also seeing states take their own measures. Of course, New York Governor Andrew Cuomo talking about very much the same things in terms of protecting residents from evictions.

For more on this, I want to bring on a very special guest who knows all about this. That would be the Federal Housing Finance Agency Director, Mark Calabria, who joins us now on the Google Hangout. And, Mark, when we look at this, I mean, a lot of people are wondering what can be done here, but, of course, Fannie and Freddie generally backstop about half of the mortgages out there.

So they're going to be important in all of this, but it does sound like relief is coming. What kind of advice are you giving to both owners of these apartment buildings, houses, and then also the people potentially paying mortgage payments their self? How should they be weathering this storm?

MARK CALABRIA: Thanks, Zack. And I do want to emphasize that, while Fannie and Freddie have just under half the market, we've coordinated with HUD, FHA. We've been coordinating with lenders. And I would say the standards that we have set really are being used by over 90% of the market, even if we're only about half of it.

So let's start with renters. Because, Fannie and Freddie, we operate through the mortgage, we're offering forbearance to landlords if those landlords agreed not to evict during the forbearance period. So, if you're a renter, and you're experiencing distress-- you've lost your job. You've had a decline in income. And you can't pay. You immediately reach out to your landlord.

I think a lot of landlords will probably give people a break anyhow, but, if your landlord needs to get a break themselves, we're passing that along. And, again, we'll give the landlord forbearance for as long as the time where they can't make the rental payment. And, again, that's where we've focused on the rental side.

Very similar with the homeowner, actually, easier with the homeowner because we directly interact with the mortgage there. If you've lost your job, if you're suffering a declining income, or if your spouse has suffered a decline in income because of this crisis, and it doesn't-- you don't have to be sick yourself or anybody in your family have to be sick. It really could just be your job has been lost. You're working at a restaurant, and it's closed down.

Reach out to your servicer. That's the lender you talk to every month when you send the check. And we'll put you in forbearance for as long as this time. And then we'll get you back on your feet when the economy comes back.

KRISTIN MYERS: Mark, it's Kristin here. Is there at all a concern on your end that, essentially, lenders won't be able to keep this up as long as this crisis might continue on? I get that, you know, we can provide this kind of relief, perhaps, for one month, maybe two. But, the longer this goes on, is there at all a concern on your end that lenders might not be able to keep this up?

MARK CALABRIA: It-- that is a concern. And it's even a concern in the short run. So let me really emphasize two big reasons. One, triaging this, lenders across the board, they're doing the responsible thing in that their employees are working from home like the rest of us. So the typical efficiency of servicers is now down 25%, 30%. They can't handle the call volume.

Those servicers I've talked to are telling me that 70%, 80% of the calls are people who aren't suffering a hardship today, but who want to know what their options are. And that's fine. We all want to be informed. But I would ask, if you're not facing a hardship right now, if you haven't lost your job, at least wait a week or so if we can get through the first payment at the beginning of the month where we can help the people who need help. So there really is a triage situation here.

The lenders I'm talking to, many of them also tell me they're about a week away from a digital solution where all this can be done online. So I would say and ask really, if you don't need help today, please don't call. Let-- let those who do need help be focused on. That's the first thing.

And, again, if we don't get a lot of people taking advantage of this who don't need it, that will allow the lenders to continue the servicing for much longer. So we've talked to a lot of the big servicers. And you're right. If this goes on for two to three months, and so borrowers are missing two or three payments, then I believe that the numbers we're looking at, then the system should be OK.

If we're looking at a six-plus-- six month or plus, then there's really going to be a lot of stress among lenders. There's going to be stress at Fannie and Freddie. So our hope is, of course-- and I don't have a crystal ball. We'll all find out how long we're going to be in this. We've got this, I think, in a sustainable path for two or three months. If it goes beyond that, we may need to have Congress or others step in to provide a little more support.

ZACK GUZMAN: Yeah, and that's-- that's the question right now because, you know, when we talk about all the data, the underlying data here, a lot of people tying this back to the financial crisis each time we do get an update. But one of those things, of course, Americans wouldn't forget is that $190 billion bailout that-- that happened back then to take over Fannie and Freddie. Of course, right now, as you're saying, they're kind of setting the example beyond just the mortgages that they back, so the industry following the example here.

But, when you do look at that, I mean, Amherst Holdings was doing the math that you're talking to there. In extreme scenarios, when you see more than 25% of households that rent in the US not making those payments you're talking about because of the coronavirus, that would require, they say, about $12 billion a month in government support.

And you pair that with the fact that you're seeing, at least when you took-- or when you looked at the numbers last year, more and more of these mortgages coming from Americans that have about 43% of their income going to mortgage payments. Those would be the ones that are a little bit more stretched here to be making their mortgage payments.

When you pair those things together, it does sound like a large amount of money would be needed to thrown at the-- to be thrown at the problem. And an increasing amount of Americans caught in these more expensive, relative to how much money they're making, mortgage payments here. So what do you say about people who might be looking at this and, again, tying it back to 2008 and saying, uh oh, this doesn't look good?

MARK CALABRIA: Well, I certainly share those concerns. You know, we want to make sure that we're not having to rescue Fannie, Freddie, or the lenders. Let me first say, for those borrowers who may be worried about payment shock, I mean, most of the time, what we're going to try to do is let's say you've missed three payments. We tack on three payments to the end. You could, of course, always pay more if you want to catch up.

But the real approach here is to make sure that borrowers aren't facing payment shock. You know, a real open question is, if this goes on beyond three months, are we going to start to see declines in house prices? At least today, we're not facing a lot of borrowers that are underwater. Most of the borrowers, we're hoping that, when the economy gets going, it starts their job again. So, if this is a temporary time, I think that this is manageable.

So two margins to think about this is, A, what's the take-up? Are we going to see 25%? Looking at Fannie and Freddie, and looking at our estimates, we think, if this only goes on for two or three months, the take-up is going to be closer to 5%. So that's one margin.

The other margin is how long does this go on. So I'm-- I 100% agree, if we're in a six-month situation, take-up may well become 20%, 30%. And that's at a point where you're certainly going to see a tremendous amount of stress and, potentially, face rescues, bailouts in the mortgage market. But, again, if we're at a two, three-month situation where take-up is closer to 5%, then it's absolutely manageable.

ZACK GUZMAN: All right, there you go, FHFA Director Mark Calabria, thank you so much for joining us. I appreciate you taking the time.