Keeping Americans in their homes should have been among Congress’s top priorities in crafting the CARES Act. Home foreclosures and evictions will put people out on the streets, sabotaging social distancing and shelter-in-place efforts and creating an even larger public health crisis.
Yet the CARES Act contains only a few provisions that could help American families stay in their homes, and those provisions fail to adequately protect people’s living situations. It similarly provides minimal resources to help America’s homeless population. To ensure that Americans can stay-at-home and have homes to stay at, Congress must provide people with resources to make mortgage and rent payments, and to pay for electricity, gas, and water.
We propose a comprehensive solution to keep Americans in their homes and otherwise sheltered, and thereby to help keep all Americans safe.
CARES Act Falls Short on Mortgage Forbearance and Eviction Moratoria
The CARES Act’s most robust provision to help people stay in their homes is Title IV’s mortgage forbearance, which allows homeowners with federally-backed mortgages to request six months of forbearance, during which late fees or penalties will not accrue.
This brings two key problems. First, forbearance does not mean forgiveness. People will have to pay deferred amounts later. The CARES Act doesn’t specify when the deferred payments are due, which means that mortgage servicers can require homeowners to pay all accrued amounts in one lump sum at the end of the forbearance period. If a homeowner cannot pay, the lender can foreclose.
Second, the forbearance provision does not apply to the 38% of mortgages owned by private lenders. Those lenders will be free to foreclose upon borrowers who fall behind, subject only to a grab-bag of state protections.
The CARES Act also falls significantly short in providing eviction relief to America’s 43 million renters. Only renters who are part of a federal housing program (such as public housing or the section 8 voucher program) or whose landlords’ mortgages are backed by some federal lending program are covered despite the fact that there is no easy way for them to find that out. In total, this means that the law only potentially applies to 28% of renters.
Also, nothing in the CARES Act addresses what happens to missed rental payments. The law prohibits fees and penalties from building-up for non-payment during the eviction moratorium, but it does not specify when the missed rent must be paid. Must it be paid in a lump sum when the moratorium ends? Before the lease is up? Few renters will have that much cash on hand. Overall, most renters will have to fall back on their states for relief.
Congress could address many of these issues with a patchwork of solutions in the next bill. They can mandate that lenders and servicers of federally-backed mortgages provide homeowners with loan modifications that extend loan terms by the number of months the loans were in forbearance. Congress can enact a similar mandate for other mortgages, but financial institutions undoubtedly will balk at such rules, setting up a potentially time-consuming fight exactly when Americans need housing security.
A federal eviction moratorium will be an even tougher sell and Congress may encounter constitutional “takings” issues. A widespread eviction moratorium would surely bring protests from landlords who are struggling to deal with the nearly one-third of American renters who did not pay their rent at the beginning of April. Plus, these solutions do nothing to address utility expenses and do not provide dedicated resources to shelter people experiencing homelessness.
In short, making it so that people do not have to pay for their basic housing expenses while the government tries to manage the public health and economic aspects of this crisis is an inefficient, incomplete, and potentially unworkable solution. But America cannot afford people being kicked out of their homes because they now cannot earn enough money to cover necessities and have depleted what little savings they had.
Monthly Housing Payments Needed
So what should be done? Congress needs to step up in a different way, as other countries have. While states mandate that most people stay home, we must pay them to do so.
Given the magnitude of this crisis, right now, Congress does not have time to sort out who “deserves” money and who doesn’t. Every American household must get, as quickly as possible and on a monthly basis until the crisis abates, an amount sufficient to cover their housing and utility costs. This amount should be on top of whatever unemployment insurance or other amounts they are paid.
There are various ways to calculate the payment amount. The leading way is to peg the amount to states’ or regions’ median housing and utility costs. These amounts may be based on U.S. Census data or data from the Bureau of Labor Statistics, as is used in setting budgets for people who file bankruptcy.
Congress also needs to improve how it gets these payments to Americans. Money can be loaded onto reusable prepaid cards sent via the U.S. Postal Service (another entity that must be helped), distributed in-person, or deposited into people’s bank accounts. The federal government could even grant state and local officials the ability to create the funds necessary to distribute money to keep people in their homes and to house the homeless.
These payments must come with protection from debt collection, since the point is to keep people in their homes so that the public health crisis isn’t amplified. If next year it turns out that a household didn’t need this money—because they earned enough income or owned their home free and clear—the government can recapture the excess through taxes.
Crucially, questions about back end recoupment must not delay or destroy efforts to implement the best way to keep people housed and keep all Americans safe. Getting as many people as possible off the street right now and for the foreseeable future is of life-and-death importance.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Pamela Foohey is an associate professor of law at the Indiana University Maurer School of Law. Her research focuses on bankruptcy, consumer finance, and commercial law. She is a principal investigator on the Consumer Bankruptcy Project, an on-going, long-term research project studying persons who file bankruptcy.
Dalié Jiménez is a professor of law at the University of California, Irvine School of Law. Her research focuses on bankruptcy and consumer distress, the regulation of financial products and its intersection with consumer protection, and access to justice. She is a principal investigator in the Financial Distress Research Project, a longitudinal study examining what works to help individuals in financial distress.
Christopher Odinet is an associate professor of law at the University of Oklahoma College of Law. His research focuses on commercial finance, consumer transactions, and property law, with an emphasis on innovations in consumer lending. His book, Foreclosed: Mortgage Servicing and the Hidden Architecture of Homeownership in America was recently published by Cambridge University Press.