By the Numbers

A chaotic extension of the eviction moratorium

| August 6, 2021

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. This material does not constitute research.

The Center for Disease Control’s hasty and arguably unconstitutional extension of the tenant eviction moratorium is likely to be short-lived. State and local governments have been frustratingly slow at distributing $46 billion in government aid to renters and landlords, which is more than enough to cover overdue payments for the estimated 6.7 million rental households behind on their rent. The distribution of aid should be a positive for the agency multifamily sector, and for borrowers in the Freddie Mac small balance loan program in particular.

Bowing to pressure

Under intense pressure from progressives, the Biden Administration directed the CDC to extend the eviction moratorium in areas of substantial and high transmission of Covid-19. The new order issued August 3 expires in 60 days on October 3, 2021. The stated intent in the order is to temporarily halt evictions in counties where cases are rapidly increasing and allow additional time for rent relief to reach renters and to further increase vaccination rates. This appears to cover 80% of counties in the US.

Likely to be immediately struck down

The CDC extended the moratorium again despite a June 29 Supreme Court ruling which, although it left the moratorium in place through July 31, cautioned that “clear and specific congressional authorization (via new legislation) would be necessary for the CDC to extend the moratorium past July 31.” That statement was written by Justice Kavanaugh in a concurring opinion to the ruling. Kavanaugh provided the swing vote in the 5-to-4 decision, and further stated that he would have upheld ending the moratorium along with Justices Thomas, Alito, Gorsuch and Barrett, but at the time it was expiring in a few weeks and “will allow for additional and more orderly distribution of the congressionally appropriated rental assistance funds.”

Based on the June Supreme Court ruling, the latest extension looks unlikely to survive a legal challenge. On August 4, both the Alabama and Georgia Associations of Realtors submitted an emergency motion in the US District Court for the District of Columbia, asking a federal judge to block enforcement of the CDC’s latest eviction moratorium. The Alabama and Georgia realtor associations were the plaintiffs who successfully challenged the previous CDC eviction moratorium in May, where US District Judge Dabney Friedrich concluded that the CDC had exceeded their authority granted under federal public health laws when they previously extended the nationwide moratorium.

The looming eviction problem

Based on data from the latest Household Pulse Survey by the US Census through July 5, 11 million adults living in rental housing were in households behind on their rent. With an average 1.7 adults in each occupied rental unit, this translates into 6.7 million rental households (15%) behind on their payments. Just under half of the renters behind on their payments (5.5 million) felt it was very likely or somewhat likely that they would face eviction over the next two months.

Before to the pandemic, the average number of eviction cases filed in the US in a given year was 3.7 million, according to the Eviction Lab. However, about a third of those were serial eviction cases filed against the same tenant by the same landlord, in an attempt to collect rent. So the estimated number of households subject to eviction filings in a typical year is likely closer to 2.5 million. Eviction cases filed during the pandemic plummeted by two-thirds while financial stress, particularly on renters, increased. Presuming the HPS data is an accurate representation of the population, that would imply slightly more than twice the annual number of rental households may be facing eviction filings when the moratorium expires.

There is plenty of available aid

The Trump and Biden Administrations have made $46.5 billion of funds available to help renters through the Emergency Rental Assistance Program. The first $25 billion was approved in December 2020 but only 12% ($3 billion) of those funds had been distributed by the end of June. The amount of available aid exceeds the amount of unpaid rent, which was estimated to be $27.5 billion in June, according to Mark Zandi from Moody’s Analytics.

The distribution of aid is the problem

The aid is being distributed through states and local governments, which had to stand up new programs to take applications, collect documentation and vet applicants, and make payments to landlords or tenants. The technology challenges alone for state and local governments appear to have complicated, and in some cases completely prevented, successful distribution of aid.

According to a Washington Post article, of the more than 400 states, counties and cities responsible for distributing aid, only 36 of those spent half of their allotted funds through the end of June. Forty-nine of those state and local programs had not spent any funds at all, including New York State.

Modest impact of the moratorium on agency multifamily

Meanwhile, many low- and moderate-income multifamily tenants and landlords are struggling to stay afloat. This has had the largest impact on mom-and-pop landlords who own one or several small buildings and have tenants that are not paying rent and whom they cannot evict. In agency multifamily, the epicenter of this stress has emerged in the Freddie Mac small balance loan program. There are currently 172 FRESB loans totaling $412 million in outstanding balance that are seriously delinquent, in special servicing, in foreclosure, are real estate owned or otherwise non-performing. However, 80 of those loans either never applied for nor were granted Covid-19 related forbearance, and appear to have been troubled prior to the pandemic. Of the remaining 92, which comprise $215 million in outstanding balance, a handful do include watchlist comments that specifically mention that the landlord is struggling because rent collections have dropped significantly.

So, if 6.7 million rental households (15%) are behind on their payments, why is there still relatively modest impact on the most exposed sector of the agency multifamily market? Small mom-and-pop landlords that cater to low- or moderate-income tenants tend to own buildings with two units to four units. Buildings with fewer than five units aren’t classified as multifamily and those landlords typically buy the buildings as single-family investment properties. They usually don’t have the operating experience or financial strength to qualify as agency multifamily borrowers, even through the small balance loan program. Ultimately some of this tenant and eviction moratorium stress is likely impacting single-family investment properties in addition to what is appearing in agency multifamily.

Mary Beth Fisher, PhD
1 (646) 776-7872

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