A new federal law protects some of the nation's poorest renters from eviction and provides poor homeowners a grace period on mortgage payments, but the support may not be enough for tenants, homeowners and landlords and could reduce housing supply in rural areas.
The March legislation to rescue the economy from the COVID-19 pandemic addresses, among others, two housing programs run by the Agriculture Department: the Rural Housing Service's Section 515 program that provides low-interest direct loans to build rental and cooperative housing in rural areas and the service's Section 502 program that directly lends to low-to moderate income borrowers and guarantees against default.
Supporters of the two programs say they help people who are vulnerable to the many pandemic-related business shutdowns. They also want lawmakers to address some of the shortcomings as they work on what is expected to be a fourth economic rescue package.
"These are really the poorest people in the federal system with regard to home ownership," said Bob Rapoza, executive secretary for the National Rural Housing Coalition. "These are low-income families, and their prospects might not be very good if this continues."
The Section 515 program provides direct loans to build rental and cooperative housing in rural areas. The loans are repayable over 50 years and apply to 13,500 properties with about 417,000 units nationwide. Landlords agree to USDA-set rental rates for a mostly white, elderly or disabled renter population with an average household income of $14,014. The federal government pays most of the rent although tenants who can meet the full rent are eligible.
The rescue package allows the landlords to defer loan payments and get 90 days of foreclosure protection. It also prohibits evictions for non-payment for 120 days.
But Rapoza said the 120 days may not be enough and noted that tenants still eventually have to make the missed payments. The impact won't be just on the tenants, but also on the projects themselves.
"If those families can't pay rent because they don't have jobs, what happens to those projects?" he asked. "What has been the case in recent years is that there is a shortage of housing in rural communities just generally."
A recent USDA rural housing report noted the loss of 214 multi-family rental properties between 2017 and 2019, a 1.6 percent decline.
Rapoza and Colleen M. Fisher, executive director of the Council for Affordable and Rural Housing, said landlords could find themselves in financial trouble and hard pressed to resume payments on their USDA loans if rent collections fall during the moratorium.
Fisher's organization represents management companies, developers and non-profit and for-profit property owners. She said the housing assistance payments for subsidized tenants will help, but added that her members are nervous.
"I think our best shot at the moment is to try to get something into phase four, and if that doesn't work, try to figure out something else," Fisher said, referring to a possible fourth economic rescue bill.
She said her organization estimates it would take $500 million to cover potential rent shortfalls just for the tenants without housing subsidies and those with housing subsidies who are unable to pay up to 30 percent of their rent. Fisher said the council wasn't able to persuade lawmakers to provide the funding in the bill signed March 27.
"Our thing is to keep the issues in front of members of Congress and their staffs," Fisher said, adding that there might be a silver lining to the extended April recess for the House and Senate.
The Rural Housing Service's Section 502 program provides direct USDA loans to low- to moderate-income mortgage borrowers for up to 38 years and guarantees loans by private lenders against default. Its goal is to foster homeownership in communities with populations up to 35,000.
The economic rescue package allows the borrowers to delay mortgage payments for up to 180 days if they claim hardship caused by the COVID-19 pandemic, and request a second 180-day deferral if necessary. The USDA issued a 60-day moratorium against foreclosure on March 19.
The new law's $600 per week boost in unemployment benefits through July may help and some borrowers will be eligible for government checks up to $1,200 for individuals and $2,400 for couples and an added $500 per child.
But people who earn less than $12,200 may be missed in the distribution of the government checks because they aren't required to file tax returns.
Rapoza said a potential 360-day pause on mortgage payments may not be enough time for homeowners to recover. He said 38 percent of the borrowers are very low income and are likely to work in the service jobs hardest hit by the domino effect of public health restrictions on the economy.
"These are really the poorest people in the federal system with regard to home ownership," he said. "These are low-income families and their prospects might not be very good if this continues." What happens, Rapoza asked, after the stimulus payments and the temporary increase in unemployment benefits end.
Rapoza said many USDA borrowers and renters live in areas that never fully recovered from the 2008-09 Great Recession and the coronavirus downturn will leave those communities struggling even more.