On a normal day, Marcella Nolan would be flashing her smile in the aisles of a Restaurant Depot, giving away samples and drumming up sales for the food brokers who hire her as an independent contractor.
In 1999, she left behind her life as a carnival operator in Ohio and moved with her children to Lakeland, Florida, where Nolan was able to buy a piece of land outright for $11,000 and take out a mortgage for a double-wide trailer. She made improvements over the years – a new septic system, a pool. In 2018, she refinanced the home and land together, mortgaging them for $56,000. Working full-time, the 57-year-old earns $2,400 a month, out of which she usually pays her $500 mortgage, sometimes even kicking in an extra $100 toward the principal.
“I paid so much for 20 years and got to a place where, ‘OK, we can do this,’” she said.
When the coronavirus hit, though, her work dried up. She applied for unemployment benefits March 16 but, six weeks later, still hasn’t received a dime and can’t check the status of her application because Florida’s website keeps crashing and phone lines are perpetually busy. She hasn’t received a promised $1,200 stimulus check from the federal CARES Act, either. Her now-grown daughters can’t help – they’re both in the restaurant industry and in similar binds.
What Nolan has received is a letter from her mortgage servicer saying that she will owe a lump sum when payments start again. “They reached out to me,” she said. “If I take their deal, come July, I have to pay four months at once. There is no way I can do that.”
With more than 30 million Americans out of work, some people are fearing a repeat of the 2008 housing crisis, which saw nearly 10 million foreclosures over an eight-year period. Are we in for a similar ride? What might the political fallout be, especially in Florida, a key swing state, during a presidential election year?
Data from Black Knight, a real estate data firm, shows that as of April 30, 7.3 percent of all mortgages nationwide – more than 3.8 million, amounting to about $841 billion in unpaid principal – are in forbearance agreements already. Some experts predict that between one-quarter and one-half of borrowers will enter forbearance. A special report from California-based real estate analytics firm ATTOM Data Solutions identified 50 counties nationwide that would be most vulnerable to foreclosures. Ten are in Florida.
ATTOM’s chief product officer, Todd Teta, told Capital & Main that it’s unknown how many newly unemployed people are homeowners at serious risk of falling behind on mortgage payments, but “it’s reasonable to assume there are many. And, while lenders have pledged to temporarily hold off on demanding mortgage payments, that can’t last long. When they do start requiring mortgage holders to resume payments, the number of defaults is likely to rise, leading to a new wave of foreclosures.”
Bruce Jacobs, a Miami attorney who helps homeowners stave off foreclosures, says that banks won’t file foreclosure actions until borrowers are 90 days delinquent. Coronavirus began triggering mass layoffs in March, so “by the summer, the wave will start.” Jacobs said that “unless the government intervenes, we’re going to see something far worse than we ever saw during the Great Recession and even the Great Depression. A third of the country’s industries are gone and may not be coming back.”
Not everyone has such a bleak outlook.
Michael Azzarello, president of the Mortgage Bankers Association of Florida, points out that, for any federally backed mortgage loan, the CARES Act specifically prevents foreclosures until mid-May, and gives borrowers the right to request forbearance for up to 180 days, plus an extension for another 180 days, without additional penalties. He said most conventional loans are federally backed, though “jumbo loans” – worth more than $510,400 – are not. (The Washington Post in October explored how the federal government has taken on massive risk over the past five years, now backing about $7 trillion in mortgage-related debt.)
“The last real estate recession was wickedly bad,” Azzarello said. “There were tons of foreclosures. People were speculating, buying condos before they were even completed. When the market crashed, there were tons of available properties.” This time around, sellers who can afford to are removing homes from the market rather than let prices drop. There is a healthy demand for homes, and he predicted most people will be back to work in six to nine months. During that time, “Hopefully [homeowners in a pinch] can hang on and save their homes.”
“I just don’t see a foreclosure crisis this time around,” said Ken H. Johnson, an economist and finance professor at Florida Atlantic University. The 2008 crisis was caused in part by banks offering subprime mortgages even to people with no jobs and no money down. Lending standards have since been made stricter, in part due to the Dodd-Frank Act, and most borrowers now are better positioned to weather a downturn.
“In two, three, four months, we’ll be pretty much out the other side,” Johnson predicted. Unless, he conceded, “if we’re out here a year from now, and 30 percent of the businesses in America are still closed. Then all bets are off, and we’ll see a financial meltdown of biblical proportion.”
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THE GOVERNMENT AND THE MARKETS
Anna Eskamani, a 29-year-old member of Florida’s House of Representatives from Orlando, expects that any recovery will indeed be excruciatingly slow. Many of her constituents work in hospitality or in film and television.
“Folks are not going to be getting back to work soon,” Eskamani said. Theme parks and hotels haven’t opened. “Shows are not being filmed with live audiences.”
Jacobs, the foreclosure attorney, pointed to the Preamble to the U.S. Constitution. “The Founding Fathers said that the government is supposed to establish justice, insure domestic tranquility, provide for the common defense, and promote the general welfare. I think it would be required under the Constitution for the government to step in during this unprecedented economic time and do something that helps the people and ensures domestic tranquility.”
In a worst-case scenario, he said, “If people are hungry, with no money, with no way of getting money, you are going to see a lot of unrest.”
But how much of a tab could the government pick up? Some Florida municipalities have kicked in millions of dollars in housing assistance already – mostly for rents, not mortgages – only to meet a small portion of the need. Orange County, where Eskamani lives, set aside $1.8 million in grants to help residents pay rents – enough to assist about 1,500 people. More than 26,000 applied and the program was shut down. The City of Miami has announced a similar $2.2 million initiative to help renters with grants of up to $1,500, payable directly to landlords and utility companies. But the program’s available funds are only enough to provide $1,500 in assistance to 1,466 families – a fraction of Miami’s 470,000 residents – for a single month. Some economists have called for the federal government to inject the economy with whatever it takes, though such intervention – the Federal Reserve has been putting $1M into the financial system every second, according to Foreign Policy magazine – is sparking fears of inflation and deflation.
Gov. Ron DeSantis has issued an executive order banning foreclosures and evictions until mid-May. In an April 29 letter, Eskamani, along with five other Democratic state reps, asked him to work with lenders and banks to secure mortgage forbearance. State Republican leaders, including the governor, House Speaker Jose Oliva and GOP Chairman Joe Gruters, were asked via email whether they would also be advocating for further government intervention, or prefer to leave mortgages to the free market. None responded for this article.
While governments are in crisis mode, the financial markets seem well aware that one person’s misfortune is another’s opportunity. On Wall Street and in private equity firms around the country, investors have already begun gathering pools of money to buy up distressed assets in the coming months. Pimco started a $3 billion fund; General Atlantic, $5 billion. Oaktree Capital Group, owned by Brookfield Asset Management Inc., is looking to raise $15 billion, which would be the biggest distressed fund ever, according to Bloomberg.
During the Great Recession, millions of families lost their homes to foreclosure. The shifting economic landscape also allowed for more consolidation in the real estate industry, as companies were able to swoop in and buy properties en masse. MAA, a publicly traded real estate investment trust (REIT) that’s the top apartment owner in the country, grew to own more than 100,000 apartments – more than the total number of households in Tallahassee and nearly as many as in Orlando. Combined, the top 50 apartment owners in the country own 2.2 million of the nation’s estimated 21.4 million apartment units. According to Fortune, a few top companies now hold about 300,000 single-family homes combined. These include Invitation Homes, another REIT, with about 80,000, and Amherst Residential, a private company, with about 20,000 homes. Amherst’s CEO, Sean Dobson, has said he wants to boost that to 1 million in the next 15 years.
Critics have fretted that economic conditions are leading to a “neo-feudalism”, with capital and property concentrated in the hands of the few and everyone else reduced to wage earners and perpetual renters, which could in turn threaten democracy. On a blog post from August, Invitation Homes defended its practices, stating that “we own less than 1% of the single-family detached homes in every market we operate in” and “We do our homework and then compete just like anyone else. We just do it on a larger scale.” Will institutional owners consolidate more single-family homes in the wake of coronavirus? Neither Invitation Homes nor Amherst Residential commented for this story, but in a statement prior to an earnings call this week, Invitation Homes CEO Dallas Tanner said, “We have over $1 billion of available liquidity” and “will remain nimble and ready to grow when the time is right.”
Johnson, the Florida Atlantic University professor, dismissed the notion that America could soon look like a feudal state, with landowning aristocrats and rent-paying serfs. “Ownership of single-family homes is very democratized,” he said.
He didn’t want to characterize consolidation as inherently good or bad. “That’s a natural economic response by some with capital,” he said.
Waiting-in-the-wings buyers could keep prices from falling. The Mortgage Bankers Association found that after a five-week decline, there was an uptick in mortgage applications the week ending April 24. For anyone who can qualify right now, mortgage rates have been hovering near record lows.
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The financial crisis of 2008 inspired the Occupy movement, with people taking to the streets and railing against the one percent. Could this recession spawn a similar shift to the left?
So far, Eskamani said, “People are super pissed right now, and there are many Republicans who have called our office saying, ‘I’m never voting Republican again. This is shameful! I’ve worked my entire life! These are my taxes! Where are my taxes?’ People are angry.”
If anyone were going to inflame a leftist movement, it’d be people like Jeff Weinberger, a Fort Lauderdale activist and founder of the October 22 Alliance to End Homelessness, who was involved with Occupy in Florida, and thinks Bernie Sanders is a sellout for having endorsed Joe Biden.
Weinberger says that leftist tactics, such as calls for rent strikes, are rare in Florida. “It happens a little bit in certain cities, but not at all here. Even the liberal black organizations like New Florida Majority or Miami Workers Center, they support pretty mainstream Democrats.” He laments the lack of action that could change the system. “If we’re not going to have courage in a moment like this, where are we headed?”
Marcella Nolan was getting political. On April 29, her senator, Rick Scott, opined that “a big problem that I’ve been warning about for weeks now” was that Floridians “could make more on a government program than in a job.” She called Gov. DeSantis’ office looking for that supposedly lucrative check. On Twitter – which she previously used mostly to declare that Blake Shelton is hot – Nolan wrote, “Rick Scott is the biggest piece of dunk Florida ever had.”
ATTOM’s Todd Teta surmised that mortgage problems could become more of an issue as the months wear on. “If millions more homeowners face possible foreclosure, it’s highly likely the presidential candidates will be looking for ways to appeal to them with federal aid or some other measures to try to keep people in their homes as long as possible,” he said. “There are roughly 81 million homeowners in the United States, 54 million who have mortgages and 7.5 million who were underwater on their mortgages in Q4 2019. Which means a lot of potential votes.”
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