As missed rent payments and delinquent mortgages pile up statewide, Democratic lawmakers in California on Tuesday introduced a series of sweeping proposals to protect landlords, tenants and landlords from the economic fallout of the COVID-19 pandemic.
A plan presented by Senator Toni Atkins, Democrat of San Diego and head of the state Senate, would give qualifying tenants 10 years to repay missed payments directly to the state, which in turn would compensate landlords for rent. ran out with tax credits that could be sold to pay off mortgages and other bills.
A separate bill from Congressman Monique Limon, Democrat of Santa Barbara, would allow California homeowners to seek forbearance on their mortgages for nearly a year while requiring mortgage agents in most cases to take care of payments missed monthly installments at the end of the loan. The legislation would also allow borrowers of auto loans, payday loans and other debts to defer payments without fear of immediate repossession or other penalties.
“During emergencies and financial crises, we need to strengthen consumer protection, not dilute it,” said Limon, who chairs the Assembly’s Banking and Finance Committee.
Both proposals represent an unprecedented state government intervention in California’s housing and consumer debt markets and are sure to garner close scrutiny from a range of interest groups. Banks and mortgage agents are worried about how a prolonged forbearance would affect their bottom line, while homeowner and tenant groups are united in their demands for public funds, but have very different views on the terms. attach to emergency rental aid.
An “out-of-the-box” approach to help tenants and landlords
While the California court system has put on hold most deportation proceedings during the governor’s tenure state of emergency declared, the first of each month brings new questions to tenant and homeowner groups about what will eventually happen to them.
There is no complete public data on the precise number of Californians who do not pay their rent. While a national group of homeowners believes May’s rent payments were surprisingly on track compared to last year’s rates, the longer the shutdown, the more missed rent payments start to pile up. A UC Berkeley study found that rents owed by California households in essential industries total nearly $ 4 billion per month.
With the state crippled by a forecast deficit of $ 54 billiont, Democratic Senate leaders believe they’ve found a creative way to help both tenants and landlords without further depleting state coffers.
Tenants and landlords would voluntarily enter into a state program where tenants could repay past due rents directly to the state over a 10-year period, starting in 2024. No late fees or interest would be added to payments. missed rent, and the government would write off the debt of tenants who are still in dire financial straits.
Landlords would not be able to evict these tenants, but would instead receive state tax credits equal to lost rents, starting in 2024. These tax credits would be transferable, so landlords could sell them now to meet mortgage payments and other expenses. .
“This is not a gift to anyone,” said Senator Steve Bradford, Democrat of Inglewood, who helped develop the proposal. “This is not a free ride. The Senate gives a helping hand to tenants and landlords, not a helping hand. ”
The program would cost the state between $ 300 million and $ 500 million per year, but would not be capped if needs exceed those estimates. Tenants would also be required to provide documentation proving that they experienced financial hardship due to COVID-19, and higher-income tenants could be excluded from the program.
Renter and homeowner groups, desperate for public money, have expressed cautious optimism about the proposal, but have warned that crucial details will need to be worked out before they can give their full support.
“I would say I’m encouraged by management, but the details will count,” said Brian Augusta, legislative counsel with the California Rural Legal Assistance Foundation.
Augusta stresses that any tenant debt plan must be accompanied by a guarantee that landlords could not use non-payment of rent due to COVID-19 as a qualifying pretext for eviction. Renter groups would also prefer that participation in the program be mandatory for landlords, fearing that some will refuse rent assistance to evict tenants they previously considered problematic.
Homeowner groups wonder if selling tax credits would free up enough money to meet their bills, especially if they can’t get back the face value of the tax credits.
“It will certainly bring relief, as it is written now, to homeowners who can wait until 2024,” said Debra Carlton, lobbyist for the California Apartment Association. “We are certainly determined to work with (Senator Atkins) to refine the program, our issue will be whether we can still help mom and dad owners who may not be in business in 2024.”
New mortgage relief options
The federal stimulus package enacted in March prohibited mortgage agents – the companies that collect mortgage payments – from initiating foreclosures on homes funded by federally guaranteed mortgages. Borrowers could also request up to 180 days of forbearance – essentially six months without paying their monthly mortgage bill – with an option for an additional 180 days if the national state of emergency is not lifted by then.
But private mortgages not federally insured are exempt from these rules. These loans account for about 30% of mortgages nationwide, and possibly a larger share in California, where high house prices often exceed what federal mortgage programs are allowed to fund.
Limon’s bill would extend the foreclosure ban to private mortgages and allow borrowers for up to almost a year to temporarily waive mortgage payments, withholding extending beyond the state of emergency declared in California.
Missed payments added at the end of the loan; no packages
In other words, if you miss six months on your mortgage because you were made redundant, you have six months at the end of your loan to make up for it – no interest or penalties are allowed.
“We know these lump sum ideas are very, very difficult when someone is out of a job or their hours have been cut,” Limon said.
Congressional Democrats on Tuesday released a third federal stimulus proposal today, with many of the same borrower relief provisions contained in Limon’s bill. But some consumer advocates say further state action is likely to be needed.
“We can’t necessarily count on what’s going to happen outside of Washington,” said Lisa Sitkin, attorney for the National Low Income Housing Project. “We want the state to help especially low and moderate income borrowers.”
A spokesperson for the California Bankers Association, the capital’s premier banking lobby, said the group has yet to take a formal position on the bill and cited voluntary deals banks are already making with banks. affected borrowers. Governor Gavin Newsom negotiated a deal with several banks and credit unions end of March which would allow 90-day grace periods for some borrowers.
But Diana Dykstra, chief executive of the California Credit Union League, said granting extended mortgage forbearance would be ruinous for small banks that depend on interest payments for their capital buffers.
“For credit unions it will be a financial disaster,” Dykstra said. “If you look at the way the bill is written, someone can go a whole year without having to make a mortgage payment. ”
Breaks for auto, homeowner, payday loan debt
Beyond the new protections for homeowners, Limon’s bill would offer more flexibility to other types of borrowers.
Repossession companies would be prohibited from repossessing cars for overdue car payments for up to 180 days after the declaration of a state of emergency is lifted. Auto loan borrowers could also apply for forbearances of up to nearly a year, and missed payments would be postponed until the end of the loan term instead of being paid as a lump sum payment.
Landlords with mortgage debt would be granted similar options for forbearance, provided they offer some form of “rent relief” to tenants and agree to end evictions. Sellers of payday loans – high-interest debt given to generally low-income consumers trying to meet paychecks – would be required to lower fees and offer extended repayment plans.
As the state legislature works on a fast-track schedule due to a pandemic-induced hiatus, the Senate tenant relief proposal and Limon’s bill will quickly face a series of crucial votes in the coming weeks.
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