COVID-19 No California Mortgage Payments for 90 Days
Who is footing the bill in California?
4 min read
California Governor Gavin Newsom followed the lead
On Wednesday, California governor Gavin Newsom followed the lead of five other states in the US by announcing the suspension of mortgage payments for tens of thousands of homeowners in his expansive state. Four of the nationals’ largest lenders agreed to the moratorium, including Wells Fargo, U.S. Bank, Citi Group, and JP Morgan Chase. Bank of America, under fire from the California leader, refused to file in, only committing to a 30-day forgiveness (although we won’t be surprised if it joins in). Earlier in March, he had issued an executive order allowing individual cities to organize their own moratoriums, and this move also follows the announcement a few weeks ago of Fannie Mae and Freddie Mac loans being granted a 60-day payment freeze, so although surprising, this announcement doesn’t reach the level of shock.
California Homeowners Feeling a Squeeze?
California has been experiencing a housing crisis for some time, and the COVID-19 pandemic and associated unemployment isn’t doing it any favors. With a disproportionate number of renters in the Golden State, the $1 million plus unemployment rate solidifies the spiral they have been in. With the economy at a veritable standstill, Newsom is likely thinking of ways to stop the California economy from bleeding out. Helping Californians with their mortgage payments may be the first step.
But who ensures his good intentions are followed through as he imagined, and what will the cost of administering this order be? In addition to the four big banks, nearly 200 state banks and credit unions have fallen in line, providing a nearly universal halt in mortgage payments. Like every other state, California has a well-run unemployment benefit program, designed to protect employees who have lost their jobs; unemployed workers in California are eligible for up to $1,000/week under the state’s program. And just today, the Congress has finally passed the $2 TRILLION COVID-19 stimulus package designed to keep the American public afloat. So, throw in $1,200 per adult payments, and it appears that Californians can at least put some peanut butter & jelly sandwiches on the table, without eating them on the curb.
There is always a dark side to something like this; with some financial assistance, California residents receive an olive branch, but what does the banking industry get? Newsom states that every homeowner is eligible, with no income requirements and only a vague statement that “documentation” will be required to participate. Do we really believe that only those in deep financial trouble will be able to take advantage of this offer? Or will this end up like the cases of people driving up to a parking lot in a nice car, only to stand at the corner begging for money? And will the administration costs of a wide-reaching program like this cost more than anything saved?
With the heart of this crisis still the rapidly expanding pandemic (California accounts for 5,683 cases and counting), Newsom has another major problem, both financial and human—the shortage of masks, gloves, and other protective equipment for the struggling health care industry. On the same day, he announced that the stockpile of supplies was dwindling, rapidly. His office then announced that they will empty out the state’s “Economic Uncertainties” fund, using the $1.3 billion to acquire more medical supplies and equipment for California’s exhausted health workers and hospitals.
And to add another flame to the fire, renters across the state are perhaps in even more dire straits. Although legislation has been introduced to protect those close to losing their homes through eviction, it won’t be heard until lawmakers meet again—in April. Therefore, it will be up to landlords to exhibit benevolence in these tough times, not the state of California. It seems like no matter what financial agreements are made, it’s the taxpayers of California who truly pay the bills.
Interested in more?
Sign up to stay up to date with the latest mortgage news, rates, and promos.