We are facing a major disruption in the economy right now and major media would have us all believe that if we stop paying our bills, then it will sort itself out eventually. As usual, the reality is a bit different though. Mortgage forbearance does not equal mortgage forgiveness and this means that home owners need to continue paying their monthly payments even if it is hard to make the payment happen. The Coronavirus Aid, Relief, and Economic Security (CARES) Act has provided options for home owners who are unable to pay their monthly amount, but it does not specify what exactly lenders must do. The options can be anything from a forced refinancing of your loan (which carries corresponding additional charges and potentially higher monthly payments) to repayment of the missed payments being due in one large lump sum a few months down the road. These options don’t sound great and that’s kind of the point. If I, as a mortgage borrower, can’t make good on even one monthly payment, then I’m in default of my loan. That’s a bad thing, coronavirus or not.
This obviously leads to the next question, “What about renters who can’t pay their rent?” This is a question that we need to ask and one that has different answers depending on who you ask it of. There is no question that some of the most vulnerable of our community have been dealt a tough hand in this situation. Restaurant, retail, and other types of employees are typically not earning large incomes and are facing a crisis if they miss a week or two of pay. Sadly, the government’s response did not include a strategy for all of the displaced workers prior to the stay home order that effectively displaced all of these workers.
Similar to mortgage borrowers, if I, as a tenant, cannot pay my rent, then I’m in default of my lease and that is definitely a bad thing. Options for tenants who are unable to pay their rent are not really any different then they are for mortgage borrowers. The reality is that the rent cannot go unpaid without causing undue harm to the landlord, so typical responses from landlords follows the forbearance model: rent paid over longer time, due dates delayed, etc. The common theme is that the rent still needs to be paid at some point. One good point made by a local attorney was the matter of getting behind in rent. He said that most folks can manage to recover from getting behind by one rent payment, but the majority of renters will be unable to recover from falling behind on rent by more than that. As a result, it is definitely in a tenant’s best interest to try to make the rent one way or another and to try to stay on top of it until the economy is back in action.
This leads to the obvious question: how many tenants are in default for April and how does that compare to a normal April? For us, the delinquency rate for April, 2020 is right about 10% which compares to a delinquency rate of 4.73% in April of 2019. Those numbers are very coarse and include payment accommodations. With that said, I think that our tenants should be applauded for their commitment to sticking to their agreements even in the face of uncertainty. These numbers also demonstrate a stark difference from national news outlets reporting that far larger numbers of renters are not paying their rent.
With the upheaval that we’re seeing and the gloomy reporting, I think it is important for us to remain optimistic and to face down our problems together. We at Byrne Management are thankful for all of those who are trying to make the best of a very difficult situation.