Washington Business Journal
April 16, 2020
For now, most people who need help paying off the mortgage can get it. But once the coronavirus crisis subsides and the economy returns to normal, borrowers are starting to wonder: What happens when the bill comes due?
Mortgage holders across Greater Washington are certainly glad to see new forbearance programs spring up to respond to the pandemic, and most banks have offered a sympathetic ear to anyone suddenly overwhelmed by the economic shutdown. But that leniency can only last so long, and homeowners and commercial landlords alike are starting to worry about the prospect of emerging from the crisis and facing several months’ worth of accumulated mortgage bills.
A growing chorus of politicians, business owners and advocates have begun calling for some sort of government intervention as a solution, like a nationwide freeze on mortgage payments while the public healthy emergency persists or debt forgiveness for people facing the biggest financial burdens. Yet bankers warn those sorts of solutions could have catastrophic impacts on lenders, jeopardizing their own liquidity just as they’re being called on to hand out federally backed loans to struggling businesses.
Many financial industry observers believe this could all add up to banks needing a federal bailout of their own. But after the industry played such a central role in the country’s last great economic crisis, there is little public appetite for such a move.
“Banks are the only ones who seem to think they can’t take a haircut through all this,” said Montgomery County Executive Marc Elrich, a Democrat. “They expect everybody else to take a hit, but they insist on collecting every dime owed to them. … It’s going to take some sort of rebellion of business people and developers and residents saying, ‘Everybody has to share this pain.’”
Elrich and other like-minded thinkers believe that providing some sort of relief for mortgage holders is the only way to stave off a second wave of economic shocks once immediate public health emergency subsides. If unemployed homeowners, in particular, start defaulting on their debts, there could be especially dire consequences.
And the need to make mortgage payments has downstream effects on residential and commercial tenants too, as landlords feel the pressure to collect rent in order to keep paying their own bills.
"Congress should be halting mortgage payments across the board right now," said Julie Verratti, co-founder of Denizens Brewing Co. in Silver Spring. "That would give landlords a lot more flexibility … and we're all having conversations with our landlords right now."
Alexandria City Councilman Canek Aguirre sees a “domino effect” at play in this dynamic, which convinced him to include a call for a moratorium on mortgage payments in a resolution he recently authored. He started off interested in simply abating rents during the crisis, but he ultimately convinced his council colleagues to also ask Virginia Gov. Ralph Northam for action on mortgages because of the interconnected nature of the real estate ecosystem.
“There still hasn’t been enough done for renters, but I didn’t want to leave anyone else out,” said Aguirre, a Democrat. “This is an unprecedented time, and there’s a need for bold action here.”
