Geography matters as eviction moratoriums wind down
admin | December 18, 2020
This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors.
The geographic distribution of multifamily loans in forbearance could have a significant impact on defaults and losses for Freddie Mac B-piece investors. Federal eviction moratoriums, which dramatically reduced eviction filings across major metro areas, are scheduled to expire at the end of 2020. Protections enacted by some state and local governments provide a short-term buffer for tenants, though they could add to stress on property owners.
Geographic distribution of loans in forbearance
The distribution of Freddie multifamily loans in forbearance is concentrated in major metropolitan areas particularly hard hit by pandemic (Exhibit 1). On the east coast New York City, Boston, Philadelphia, Atlanta and Miami metro areas are among those with concentrations of loans in forbearance. The tech industry-heavy West Coast cities, which have also experienced high levels of unemployment due to the pandemic and an exodus in favor of remote working, have elevated levels of distressed loans.
Exhibit 1: Freddie Mac multifamily loans in forbearance
The distribution of Freddie Mac loan balances in forbearance on a state-by-state basis makes clear which parts of the country are relatively unscathed and which are under more stress (Exhibit 2). There are no loans in forbearance across several midwestern states and in the upper northeast states of Maine, Vermont and New Hampshire. The states with the largest balances of loans in forbearance include California, Texas, New York, Georgia and Florida.
Exhibit 2: Freddie Mac multifamily loan balances in forbearance (by state)
The geographic distribution of these loans in forbearance is potentially significant when put in context of state and local moratoriums that offer tenants additional protection from eviction once the federal moratoriums expire.
Eviction moratoria have dramatically reduced filings
Eviction moratoriums put in place during the pandemic have dramatically reduced the number of eviction filings in many metropolitan areas. This affects the ability of landlords to have tenants removed and maintain stable rent rolls. Weekly eviction filings in New York City dropped to zero during the second quarter of 2020 compared to an average of 4,000 per week during baseline years of 2016 to 2018 (Exhibit 3). As some moratoriums expired, filings rose to about 2,000 a week, still less than half of normal, but have recently dropped dramatically again as the pandemic has worsened.
Exhibit 3: Number of weekly eviction filings in New York City courts by week of year
New York’s moratorium on Covid-19 related evictions began September 29 and currently expires on January 1, 2021 (Exhibit 4). If the Covid-19 emergency is extended the moratorium is likely to be extended as well.
Exhibit 4: Summary of state eviction protections in New York
Recent state and local eviction protections
A graphical representation of eviction moratorium protections by state is available here, and in a map that covers all phases of eviction (Exhibit 5). The darker the color the more protections tenants have from eviction due to Covid-19.
Exhibit 5: Map of state and local eviction protections
- Best protections: Massachusetts (which has a high incidence of forbearance around Boston).
- Reasonably strong protections: Nevada, Texas (high levels of forbearance), Montana (which currently has zero multifamily loans in forbearance), Vermont (ditto), New York and Connecticut (both NY and CT with among the highest levels of forbearance by state).
- No state or local eviction protections: all those gray states, including Florida (high levels of forbearance), Ohio (same), and Georgia (problematic around Atlanta).
Currently most state eviction protections expire by February 14, 2021, or 30 days after the national emergency protections expire. These could certainly be extended, but it would possibly translate into a higher rate of transition to default from forbearance, and higher loss severities for those loans that do default.
Background on eviction moratoriums
Landlord-tenant laws are primarily state laws, though many places have local jurisdictional overlays. Tenants that do not willingly vacate the property at the request of the landlord or owner for any number of reasons, including nonpayment of rent, can be subject to an eviction proceeding. The complexity of the legal process, length of notification periods, time for eviction hearings to be scheduled and waiting period before enforcement actions are undertaken vary significantly by state and across jurisdictions.
State eviction process and protections
There are five phases of eviction:
- Notice of eviction – from landlord to tenant
- Eviction filings – of landlord to court
- Eviction hearings – in court with landlord and tenant
- Order, judgement or writ of execution- court decision
- Enforcement of order – police removes tenant
Due to the Covid-19 pandemic and the widespread loss of income, many state and local jurisdictions have taken measures to protect tenants from eviction at one, several, or all phases of the eviction process. The protections that states or jurisdictions can take at each step include:
- Notices of eviction are prohibited
- Eviction filings are suspended
- Eviction hearings are suspended
- Stays are placed on orders, judgements or writs of execution
- Enforcement of orders are suspended
Many state courts, due to the backlogs of cases as a result of limited operating hours during the pandemic, have prioritized criminal over civil cases. This could also potentially result in eviction hearings being significantly delayed.
Federal, state and local governments all have some power to protect tenants by invoking eviction moratoriums in certain circumstances. Federal protections can typically be extended during periods of national emergency, including hurricanes, floods, and the national state of emergency declared due to the pandemic. States and local jurisdictions can also officially or unofficially (through administrative actions) impose eviction moratoriums. All of these actions are subject to federal or state legal challenge by property owners. Rent forgiveness is typically not a component of eviction moratoriums because it invariably runs afoul of the takings clause in the Constitution.
Recent federal eviction protections
The Center for Disease Control and Prevention (CDC) issued an agency order titled Temporary Halt in Residential Evictions to Prevent the Further Spread of COVID-19. The order placed a halt on certain evictions effective September 4, 2020 through December 31, 2020. Those protections are shortly scheduled to expire. The moratorium applies only to non-payment of rent; it does not forgive rent or prohibit landlords or property owners from charging late fees. An overview and FAQ on the moratorium are available from Regional Housing Legal Services.
The FHA has extended its ban on evictions from properties secured by FHA-insured single family mortgages through December 31, 2020.
The FHFA, Fannie Mae and Freddie Mac have extended a moratorium on foreclosures and prohibited landlords of single-family properties with agency-backed mortgages from evicting tenants until at least January 31, 2021. Also owners of multifamily properties cannot evict tenants during the term their loan is in forbearance. Fannie and Freddie multifamily borrowers could originally be granted a 3 month term of forbearance, and could apply for an additional 3 month term for a maximum of 6 consecutive months in forbearance. The majority of the loans that were granted forbearance have exhausted the 3 or 6 month terms and have entered repayment.
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