Millions of Americans, who were thriving before the COVID-19 pandemic, now find themselves in a personal financial crisis.
Told not to work by their local or state government, they’re no longer earning any money.
If they own a business, it’s probably shut down. If they are an employee, chances are they’re no longer receiving a paycheck. As many as 53% of Americans live paycheck to paycheck. Even a week or two, let alone a month or more, without working creates financial disaster for millions. And in the current pandemic, none of this is their fault.
For most Americans, the number one monthly expense is housing, either paying rent or a mortgage. As the virus crisis has drawn on, and millions of Americans’ savings have dwindled with no new money coming as yet, housing is becoming yet another crisis. Americans who have never contemplated missing a housing payment, now may have to choose between making that payment or feeding themselves and their family, at least until stimulus money arrives.
From California to Colorado and state after state across the country, rent strikes and eviction bans are becoming more popular. It might seem simple to just let renters skip a month or two, but it isn’t. Most apartments and other rental housing owners have a mortgage. Owners depend on the monthly cash flow from their renters to make that mortgage payment. If the rent is no longer coming in, the owner may enter into default, through no more fault of their own.
American homeowners similarly cannot just skip payments without impacting the banks that hold their mortgages. There has to be a more orderly way to keep Americans in their homes and keep property owners and banks solvent while we all deal with the severe and unprecedented impacts from the pandemic.
Real Estate investor J. Scott Scheel may have the answer. Scheel is proposing legislation called the Moratorium and Forbearance Debt Relief Act (MAFDRA).
MAFRDA would pause all Americans’ rent and mortgage payments from the date it is enacted forward for a minimum of 90 days. That’s three payment periods for the vast majority of rent and mortgage agreements.
According to a draft of the plan, “MAFDRA’s first phase mandates a full forbearance of payments and interest for a duration equal to the length of the Federal State of Emergency and Government-mandated quarantine. MAFDRA begins immediately and lasts a minimum of 90 days. It addresses all revolving and installment debt service payments (bank debt, residential and commercial real estate loans and leases, automotive and equipment finance, credit card debt, government payments, property taxes, student loans, etc.) MAFDRA further mandates an across-the-board moratorium on interest.”
It’s like hitting the pause button on all debt. No one’s credit gets destroyed by the coronavirus. No one is evicted, or loses the home they have spent years paying for. As long as the virus plagues the country, Americans can rest assured knowing they will be able to stay in their homes. They will be able to keep their cars. And property owners can also rest assured that their livelihood will not be taken away from them because the rent stopped coming in. MAFDRA aims to stop the cascade of payment default before it can wipe out Americans’ personal and business credit.
MAFDRA is not a bailout. In fact, it “provides for NO blanket cash payments from the government to individuals, although it dovetails well with recent federal legislation. MAFDRA also provides NO debt forgiveness by any party. All payers will resume making their payments as of a federally mandated date of resumption and in the same place where they were before MAFDRA started. MAFDRA’s second phase then supports the fiscal quarter(s) after the resumption date, giving small businesses time to remobilize, restock and re-staff before the nation resumes its full economic velocity.”
Just before the coronavirus crisis struck, the American economy was as strong as ever.
There were more job seekers than jobs, housing was stable, gas prices were low and unemployment had dropped among all demographics.
Americans have every reason to expect that once the stay-at-home orders are lifted and businesses can operate again, the economy may rebound as quickly as it contracted.
This would be impossible if Americans have lost their homes, cars and businesses and seen their credit ratings crushed while the nation paused to slow the spread of the virus.
What MAFDRA aims to do is put credit payments on pause along with the rest of the country, to make sure Americans are in a position to recover when the pandemic is gone.
Dr. Michael Busler, Ph.D., is a public policy analyst and a professor of finance at Stockton University in Galloway, New Jersey, where he teaches undergraduate and graduate courses in finance and economics. He has written op-ed columns in major newspapers for more than 35 years.
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