These are quite extraordinary times. Job losses are already staggering…and they’re going to get worse…much, much worse. The mere fact that the federal government is talking about sending out checks to households across the country is just mind-boggling. A few weeks ago, the US debated normal economic matters….today, they’re going to be mailing out checks…who cares about the fact that even the largest amounts they talk about ($3,000 per family) won’t go very far.
COVID19 Forbearance
But there is one very powerful way to start stretching what money you do have available:
STOP PAYING EVERY SINGLE NON-ESSENTIAL BILL THAT YOU HAVE
In normal times that would be staggering advice. But these are NOT at all normal times, and my very stark advice here is based not just on practical realities, but based on a now constant stream of very explicit and specific government and industry reactions. Below I detail several of these provisions that inform my suggestions here. Now understand, for those with money and assets this advice may have different consequences than for those that are living paycheck to paycheck. And especially when no paychecks may be coming for a long, long time. But if the question comes, Do I pay this bill or do I save money for food or medical care or insurance…you know what the answer is.
In addition to the formal guidance already being released as detailed below, courts and in fact the whole of our society are going to have to come to grips with a very important and far reaching set of questions regarding whether debt obligations can be enforced at all when the government itself is shutting businesses down…and imposing wide spread lock down orders. California just announced statewide lockdown and it seems clear that’s coming for Florida as well because we have a higher concentration of both cases and a more vulnerable population.
And even if your debts do not fall squarely within the guidance and directives that have already been issued. As an example if your mortgage is not a Fannie/Freddie loan. But the reality is most loans are Fannie/Freddie, and even if they are not, most servicers follow Fannie/Freddie serving guidelines. And even if they are not, I’m fully expecting a financial crisis many times worse than 2008…which saw wide scale debt forgiveness.
So have a look into each of these specific debt areas:
RENT PAYMENTS
Normally evictions are a very quick process….under summary proceedings a non-paying tenant can be out in as little as 15 days….but these are NOT normal times. Large landlords are already experiencing never before heard of non payments and warnings that April rent checks aren’t coming. And with real warnings being issued to them that courts may not be enforcing evictions, landlords are going to be powerless to react to a massive wave of non payments. Some counties already announced the suspension of eviction proceedings….just wait till you see how fast this picks up:
Gov. Ron DeSantis said Thursday he would consider a statewide moratorium on evictions given the effect the novel coronavirus has had on the economy.
“I need to see what my authority would be and how it would work,” DeSantis told reporters. “If something happens with their business and they get laid off, and then they can’t make the rent payment … those are extraordinary circumstances. So I would be supportive of figuring out what I can do.”
The news comes after Miami-Dade, Orange and Hillsborough counties have made their own announcements suspending evictions locally.
MORTGAGE PAYMENTS
This is both practical advice and then legal advice backed up by some very specific guidelines and federal directives just released. Regardless of who you make your payments to Fannie and Freddie are the ones that provide the rules and operating procedures that your servicer must abide by. So when Fannie and Freddie tell them to suspend the collection of mortgage payments…they are REQUIRED to follow that directive. One of the really HUGE additional pieces of this directive is credit reporting will be suspended during active forbearance periods!
And while these directives are specific to mortgage payments, I think it’s pretty clear that the same principals are going to apply to all debt obligations. Legislation has been introduced that would suspend ALL adverse reporting on credit. But regardless of what happens with reporting, we’re entering such a catastrophic credit and consumer market that it’s just not going to matter. In order to get the consumer market moving again on the other side of this (whenever that is and whatever it looks like), you’re almost going to have to have some kind of wide scale debt forgiveness….otherwise there will be no existing cash to fund the consumer marketplace. (See the specific links below)
WASHINGTON, DC – March 18, 2020 – Fannie Mae (FNMA/OTCQB) wants to help ensure families are given options in these uncertain times in the case of job loss, a reduction in work hours, illness, or other issues. We want to remind those impacted by COVID-19 of available mortgage assistance and relief options. Under Fannie Mae’s guidelines for single-family mortgages:
• Homeowners who are adversely impacted by this national emergency may request mortgage assistance by contacting their mortgage servicer
• Foreclosure sales and evictions of borrowers are suspended for 60 days
• Homeowners impacted by this national emergency are eligible for a forbearance plan to reduce or suspend their mortgage payments for up to 12 months
• Credit bureau reporting of past due payments of borrowers in a forbearance plan as a result of hardships attributable to this national emergency is suspended
• Homeowners in a forbearance plan will not incur late fees
• After forbearance, a servicer must work with the borrower on a permanent plan to help maintain or reduce monthly payment amounts as necessary, including a loan modification
CAR PAYMENTS
While there is no specific guidance from the government regarding all consumer credit obligations, I fully expect that this will come. We’re already seeing very specific programs from auto finance institutions nationwide. And in an interesting twist….(and one that highlights the extremes to which the manufactures are going to have to go to in order to move product), some manufacturers…in addition to offering forbearance on existing loans, are taking desperate measures to move existing inventory.
Several major lenders have announced programs to both help current borrowers and give new borrowers peace of mind. The credit arms of Ford, Nissan, General Motors, and Toyota will offer first payment deferrals of between 90 and 120 days to buyers of new vehicles.
GM will also offer zero percent financing for up to seven years for top credit tier borrowers. The company is providing complementary OnStar crisis assist services to current owners for a limited time.
The auto industry is telling us two very clear things: 1)We understand if you cannot make your car payment and 2)If you’re not going to be making a car payment, wouldn’t you really rather not make a car payment on a brand new vehicle. (See the GM 120 day financing deferral) Just think about that for a moment.
What does this tell us? Two things: 1) Auto Finance acknowledges payments can’t be made and; 2) Dealers are in a real push to move their existing inventory. (Maybe during the quarantine you should be shopping for a new vehicle to be delivered.) I can absolutely see where there would be a real incentive for dealers to get inventory off their lots now…knowing that they’re looking at probably six months of a total freeze up in their sales going forward.
So in a real practical sense, what good does it do for you and your family if you’re making car payments when tens of millions of people aren’t going to be making their own car payments? Under what scenario can you see repossession agents out taking down millions of automobiles? And when auto dealers come back online how are they going to sell vehicles if credit during this period were the deciding factor?
STUDENT LOANS
There has been real talk about really progressively addressing the massive, $1 Trillion Student Loan black hole that exists. Even before COVID, the millions of workers who aren’t able to participate in the credit markets as a result of their debt burdens needed to be addressed. These people are the new earners and represent the necessary class of consuming public, but they’ve been completely excluded due to their debt burdens. So here’s the start of good news:
Amid the bad news piling up from COVID-19, one positive development emerged on Friday: Interest on federal student loans would be waived until further notice.
That’s never happened before and is an acknowledgment by the government of how tightly this pandemic could squeeze Americans’ finances. Over the last decade, the average interest rate on federal student loans has been around 5.5%, according to higher education expert Mark Kantrowitz. Meanwhile, the typical monthly student loan bill is close to $400.
As of midday Monday, it appeared lenders were still waiting on the government for instructions on how to roll out the unprecedented policy. (The U.S. Department of Education’s federal student loans are serviced by some nine different companies.)
Now…what is all the foregoing predicated on? Good, solid communication with lenders…and smartly working all the existing programs that are now or will come into existence:
“The biggest thing that consumers need to know here is that relief is available, but they need to ask for it,” said Ted Rossman, industry analyst for CreditCards.com. “Lenders are willing to work with you if you’re having trouble making payments. It’s way better to be honest and proactive than to fall behind and then try to fix things.”
