The blog of the Urban Institute
March 27, 2020

The Price Tag for Keeping 29 Million Families in Their Homes: $162 Billion

March 27, 2020

COVID-19 is already having a devastating impact on the US economy, beginning with the stock market crash and quickly spreading to the corporate credit and mortgage-backed securities markets. The Federal Reserve and Treasury Department have announced several unprecedented actions to attempt to restore normalcy to financial markets and the broader economy, and the US Senate has approved roughly $2 trillion in aid.

In the meantime, the financial fallout of COVID-19 has spread, as shown by the latest weekly jobless claims. The housing market will not be spared either—unemployed Americans will soon be unable to afford mortgage and rent payments.

The key housing agencies—the US Department of Housing and Urban Development (HUD), Fannie Mae, and Freddie Mac—have already rolled out forbearance programs for their mortgages; these programs are administered and supported by the mortgage servicing industry. Fannie and Freddie have also announced forbearance for owners of apartments they finance, provided renters affected by COVID-19 are not evicted for nonpayment of rent.

These measures are critical but won’t be enough to stabilize the entire housing market, which includes 44 million renter households—many of whom are not covered by these policies but who will also need help paying for housing.  

We’ve quantified the cost of housing assistance for both renters and homeowners and laid out scenarios that range in cost from $40.5 to $162 billion. In the context of a $2 trillion legislative expenditure, this is a small amount that could go a long way toward stabilizing the housing market while allowing families to remain in their homes.

Forbearance is available to homeowners with a mortgage

The Federal Housing Administration, the US Department of Veterans Affairs, the Department of Agriculture, and Fannie Mae and Freddie Mac have rolled out foreclosure and eviction moratoria that cover households living in properties insured or guaranteed by these agencies, which cover about 70 percent of all outstanding mortgage holders, or 33.4 million homeowners. Homeowners with fully private mortgages held by banks or private investors—another 14.6 million homeowners—are not covered.

Mortgage owner/insurer/guarantor

Number of mortgages outstanding

Share

COVID-19 relief announced

Federal Housing Administration

7,300,000

15%

Foreclosure and eviction moratorium; mortgage forbearance (PDF)

US Department of Veterans Affairs

3,200,000

7%

Foreclosure moratorium (PDF)

US Department of Agriculture

900,000

2%

Foreclosure moratorium

Fannie Mae and Freddie Mac (government-sponsored enterprises)

22,000,000

46%

Foreclosure and eviction moratorium; mortgage forbearance

Bank portfolios and private-label securities

14,600,000

30%

Some banks are voluntarily following government-sponsored enterprise guidelines for their portfolio loans

Total SF loans

48,000,000

100%

 

Sources: Urban Institute calculations based on 2018 American Community Survey and eMBS.
 

We cannot leave renters behind

Renters were more financially vulnerable than homeowners going into the crisis, as a much higher share of renters’ monthly income goes toward paying for housing. Rent payment accounts for 30 percent of a typical renter household’s income, compared with 19 percent for homeowners with a mortgage.

 

Number of households

2018 annual household income

2018 median annual mortgage or rent payment

Monthly rent or mortgage, share of monthly income

Homeowner households

78 million

$78,000

 

 

    Homeowners with mortgage

48 million

$93,000

$11,076

19%

    Homeowners without mortgage

30 million

$55,000

N/A

 

Renter households

44 million

$41,000

$10,440

30%

All households

122 million

$62,000

 

 

Sources: Urban Institute calculations based on 2018 American Community Survey and 2017 American Housing Survey.
 

What will it cost to help both renters and homeowners through this crisis?

We’ve estimated the amount needed to help renters and homeowners under different scenarios. These scenarios have two main assumptions: the number of renter and homeowner households affected and the number of months assistance is needed.

In the base scenario, we assume 20 percent of renters and 12 percent of homeowners will need assistance. In the worst-case scenario, we double the share we assume will need help, so 40 and 24 percent of renters and homeowners, respectively. If forbearance for homeowners or rental assistance is freely available and not objectively tied to unemployment or hardship, the numbers are likely to be higher.

For these calculations, we used $912 as the 2019 median monthly rent, calculated by adjusting the actual 2017 median monthly rent of $849 by 7.5 percent to account for rent inflation. We used $945 as the 2019 median monthly mortgage payment, calculated by adding a 5 percent housing price index adjustment to the 2017 $900 median monthly mortgage payment.

Base-case scenarios

 

Households assisted

Cost for three months

Cost for six months

Renters

8.8 million

$24 billion

$48 billion

Mortgage holders

5.8 million

$16.5 billion

$33 billion

Total

14.6 million

$40.5 billion

$81 billion


Worst-case scenarios

 

Households assisted

Cost for 3 months

Cost for 6 months

Renters

17.6 million

$48 billion

$96 billion

Mortgage holders

11.6 million

$33 billion

$66 billion

Total

29.2 million

$81 billion

$162 billion

Sources: Urban Institute calculations based on 2018 American Community Survey and 2017 American Housing Survey.
 

In the base-case scenarios, 8.8 million renter and 5.8 million homeowner households would need payment assistance, which will cost $40.5 billion for three months or $81 billion for six months.

Under the worst-case scenarios, 17.6 million renter and 11.6 million homeowner households would need payment assistance, which will cost $81 billion for three months or $162 billion for six months.

Moreover, it is important to realize that much of the funding needed to keep homeowners in place has already been committed through the government-sponsored enterprise and Federal Housing Administration programs. The residual funding for homeowners is primarily for mortgages which are not insured or guaranteed by the government or government-related entities. The funding for renters protects this most vulnerable population.

Providing this additional funding will keep renters and homeowners in their homes for the next three to six months, which will not only give families some time to recover from the massive COVID-19 shock but also reduce the likelihood of a 2008-like, full-blown housing market collapse. While this measure is not included in the current $2 trillion stimulus package, it should be included in future stimulus and recovery proposals.

More on our methodology

Our base-case assumption that 20 percent of the renter population would need payment assistance is informed by the consensus expectation of a Q2 2020 unemployment rate of 12–15 percent and the fact that renters are more likely than average to become unemployed. Our worst-case doubles the base-case assumption to 40 percent. Base-case, three-month renter calculation: 44 million renters x 20 percent take up x $912 rent x 3 months = $24 billion.

Our base-case assumption that 12 percent of homeowners would need forbearance assistance is based on the unemployment numbers referenced above, as well as the 2008 default experience. During the housing crisis, roughly 12 percent of borrowers went 90 days or more delinquent at the peak. Our worst case doubles the base-case number to 24 percent. Base-case, three-month calculation: 48 million homeowners x 12 percent take-up x $945 mortgage payment x 3 months = $16.5 billion.

Our homeowner- and renter-assistance estimates do not provide any credit for forborne amounts that are eventually repaid by borrowers or renters. The standard procedure of mortgage forbearance is to extend the mortgage term, moving any forborne payments to the end of the life of the mortgage. There is no interest charged on the forborne amount.

These estimates only cover rent paid to landlords and the principal and interest component of the mortgage payment. Other expenses, such as utilities, renters or home insurance, real estate taxes, and homeowner association or condominium fees, are excluded.

US President Donald Trump takes a question during the daily briefing on the novel coronavirus, COVID-19, at the White House on March 18, 2020, in Washington, DC. - Trump ordered the suspension of evictions and mortgage foreclosures for six weeks as part of the government effort to ease the economic pain from the coronavirus pandemic. (Photo by BRENDAN SMIALOWSKI/AFP via Getty Images)

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