As the moratoriums lift, will America face a wave of foreclosures and deportations?


MIAMI IS hot, especially if you are selling a house. Home prices are 20% higher than a year ago. And unlike other major US cities, rents are also on the rise (24% year-on-year) as the Magic City absorbs newly posted teleworkers. Ecstatic real estate agents describe a godsend. Sellers forgo inspections and assessments entirely, buy units blindly, and increase their prices aggressively. An agent reports that a client made an offer of $ 50,000 above the appraised value of a house and it is still rejected. Another shyly admits that she recently bought her own home without an inspection. All the usual flashy accoutrements of the city are here: ostentatious sports cars, well-visited designer stores, planes circling Miami Beach advertising a prominent rapper playing in a nightclub.

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Yet amid this exuberance, nearly 8% of Miami mortgage holders are in delinquency, among the highest share in the country. Meanwhile, renters face the end of a federal moratorium on evictions at the end of the month. A moratorium on mortgage foreclosures comes to an end at the same time, raising fears of an increase in the number of homes lost amid a spike in house prices.

Surveys conducted by the Census Bureau are indeed showing worrying signs. One in four tenants and one in ten mortgage lenders have little or no confidence in their ability to pay for their home the following month (see Figure 1). Some 2.8 million households, including 7.4 million Americans, are behind on rent. The same surveys show that 1.9 million households, in which 6 million Americans live, are behind on their mortgages. Black and Hispanic households, those who are poor, and those with children are most at risk of losing their homes.

No national freeze on evictions and seizures has ever been attempted before. The outcome of the policy is therefore unprecedented. The degree of upheaval may ultimately depend on state and local decisions, which are extremely varied.

Miami offers a compelling case study. Without a strict moratorium on evictions, many people have lost their homes, despite the moratorium decreed by the Centers for Disease Control and Prevention (CDC) to slow the spread of covid-19. “The CDC actually has a lot of holes, ”says Jeffrey Hearne, a Miami legal aid lawyer. “The biggest hole is that it clearly doesn’t apply to a landlord who evicts for no reason.” While the CDC An order prohibiting evictions for non-payment of rent, landlords could carry out other evictions for other reasons, such as the simple termination of an expired lease.

And they did. A study of 63 cities and counties conducted by the Government Accountability Office found that those with local moratoria saw evictions stay at a tenth of their usual rate; those without quickly climbed to 80% of normal volumes (see graph 2). Since January, 920 eviction cases have been filed in Miami each month, while the federal moratorium was in place. This suggests that the eventual number of rejected evictions may be lower than feared.

The increase can also be offset by other means. Congress has allocated $ 46 billion in rent assistance funds, aimed at keeping tenants in place without letting landlords bear the cost. Some cities, like Miami, quickly disbursed funds. Other cities and states have not. A May 31 Treasury Department report found that less than 4% of funds had actually been distributed. The state of California, where applications could take up to three hours to complete, spent $ 73 million of the $ 1.4 billion it was awarded. Ingrid Ellen of New York University explains the administrative complexity as follows: more than 400 separate programs had to be set up across the country, with verification and payment platforms that could cope with both tenants and clients. owners difficult to reach.

If tenants have been evicted despite the federal moratorium, the picture of foreclosures is different. Two federal policies prevented them. First the CDC moratorium, which expires soon. Second, the CARE Law, which gave homeowners 180 days forborne from their mortgage payments. This has been extended twice since, 180 days each time. Many mortgage providers have also voluntarily suspended initial foreclosures.

2008 is not

These policies have been very effective. Lenders repossessed around 7,000 properties in the first quarter of 2021, 87% less than in the same period in 2020, even though the share of mortgage debtors in arrears has reached an all-time high since the crisis global financial system (see Chart 3). In contrast, evictions in some cities are only 20% of their pre-pandemic average, according to researchers at the Eviction Lab. Landlords, in other words, have received much more protection than tenants.

Data from the Mortgage Bankers Association, a pressure group, shows that 4.3% of borrowers are more than 90 days late, or “seriously past due.” Under normal circumstances, they would face an impending lockdown. That’s about three times the level before the pandemic, says Frank Nothaft of CoreLogic, a real estate analysis company. Most of these people, he adds, are protected by government programs.

If the seizures have been more effectively quelled than the evictions, it is natural to think that they will increase more quickly. The most disturbing analogy is that of the 2008-10 global financial crisis, in which 3.8 million households lost their homes within three years. But a post-moratorium foreclosure crisis, occurring as house prices soar and the job market is tight, would be very different.

Many borrowers might try to stay put by requesting a loan modification. However, it is not a simple path. Editing requires tons of paperwork, and things can drag on the Jarndycean way. Banks can modify loans at their discretion, although regulations sometimes make this difficult. Default rates on modified mortgages have always been high, so banks have to hold additional capital against them, which they are struggling to do. The other incentive is pecuniary. Unlike 2008, all properties foreclosed by banks are likely to be sold at a profit, not at a loss. “Banks were bad when they didn’t want homes,” says Ricardo Corona, a Miami mortgage lawyer. “Imagine what they will look like when they do! “

Daryl Jones, also a Miami mortgage lawyer, expects three waves of foreclosures. First, a spike when the moratorium is lifted for those who were mired in lockdown when the pandemic began. Then, a “smooth increase” between August 2021 and February 2022 when the abstention ends. Finally, a peak in March 2022 when last-chance abstentions expire. In 2010, the worst year on record, there were 66,000 foreclosures in Miami-Dade County. There are between 5,000 and 10,000 in a typical year. Mr Jones forecasts between 30,000 and 40,000 in the year starting in September 2021.

Each statistic is the aggregate of many gloomy stories. One is Keith Simpson’s. Mr. Simpson ran a construction company until the financial crisis. He applied for a change in his loan terms in 2011 after falling behind on payments on the Miami house he and his wife bought in 1998. After two years of paperwork and progress, his wife received too much money. opioid medications while in hospital. in 2013, an accident that left her disabled. As she was unable to work, Mr. Simpson had to resubmit his application for modified conditions. Instead, the bank decided to foreclose.

His first legal action was successful. Then it was overturned by Florida’s Third District Court of Appeals, which sided with the bank. The couple received a departure notice and moved into rented accommodation in 2018, 20 years after purchasing their home. “We were completely devastated,” says Simpson. “I’m 65 and I’m starting over. He examines the situation many homeowners are currently facing and fears they may suffer the same fate.

This article appeared in the United States section of the print edition under the title “Boombust”

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