SACRAMENTO–California’s credit unions said a proposal put forth by Democratic lawmakers in this state that would provide sweeping protections for homeowners, renters and landlords from the economic fallout of the coronavirus would be a “financial disaster” if enacted.
The plan put forward by Sen. Toni Atkins (D-San Diego), leader of the state Senate, would grant qualifying renters 10 years to repay missed payments directly to the state, which would in turn compensate landlords for the missed rent with tax credits that could be sold to pay mortgages and other bills, according to reporting from LostCoastOutpost.com and multiple other media outlets.
Up to a Year
Separately, Assemblywoman Monique Limon (D-Santa Barbara) has submitted a bill that would allow California homeowners to request a forbearance on their mortgages for nearly a year while requiring mortgage servicers in most circumstances to tack on missed payments in monthly installments at the end of the loan. The legislation would also allow borrowers of auto loans, payday loans and other debts to postpone payments without fear of immediate repossession or other penalties, the reports state.
“During emergencies and financial crises we need to beef up consumer protections, not dilute them,” said Limon, who chairs the Assembly Banking and Finance Committee.
Multiple media reports said the proposals are expected to draw intense scrutiny from numerous groups.
“Banks and mortgage servicers are concerned with how a protracted forbearance would affect their bottom lines, while landlord and tenant groups are united in their demands for state funds but have very different views of what strings should be attached to emergency rental help," noted one report.
California’s courts have mostly paused eviction proceedings during the coronavirus pandemic with the state having declared a state of emergency.
Under the proposals, tenants and landlords would voluntarily enter a state program where the renters 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 on to the missed rent payments, and the state would forgive the debt of renters still experiencing major financial hardships, under the proposals.
Tax Credits For Lost Rents
The proposals further state landlords would not be able to evict those tenants, but would instead receive tax credits from the state equal to the lost rents, starting in 2024. Those tax credits would be transferable, so landlords could conceivably sell them now to meet mortgage payments and other expenses, according to one report.
“This is not a giveaway to anyone,” Sen. Steve Bradford, Democrat from Inglewood, who helped develop the proposal, told the media. “This is not a free ride. The Senate is giving tenants and landlords a hand up, not a hand out.”
The program would cost the state an estimated $300 million to $500 million per year, but would not be hard-capped should the need exceed those estimates. Renters would also have to provide documentation that they experienced financial hardship due to COVID-19, and higher-income renters could be excluded from the program, the proposal’s backers said.
Tenants’ Groups Have Concerns
Groups representing tenants said they want any renter debt plan must be accompanied by a guarantee that landlords could not use non-payment of rent due to COVID-19 as an allowable pretext for eviction. Tenant groups would also prefer that participation in the program be mandatory for landlords, fearing some may decline the rental aid to evict tenants they previously viewed as problematic, according to media reports.
Landlord groups have concerns about whether selling tax credits would actually free up enough cash for them to meet their bills, especially if they can’t recoup the face value of the tax credits, the reports added.
“It will certainly, as written now, provide relief to those owners who can wait till 2024,” said Debra Carlton, lobbyist for the California Apartment Association. “We’re certainly committed to working with (Sen. Atkins) on refining the program, our issue is going to be can we still help the mom and pop owners who might not be in business in 2024.”
Builds on Federal Provisions
The federal stimulus plan signed into law in March prohibited mortgage servicers from initiating foreclosures on homes financed with federally-backed mortgages, but privately-owned mortgages not insured by the federal government are exempt from those rules. Limon’s bill would extend the ban on foreclosures to private mortgages, and allow borrowers up to nearly a year in temporarily waived mortgage payments with the forbearance extending beyond California’s declared state of emergency.
It means borrowers could miss six months of mortgage payments due to a job loss, and then add another six months without making any payments.
A spokesperson for the California Bankers Association said in a statement it had not yet taken a formal position on the bill and cited the voluntary arrangements banks are already striking with affected borrowers.
Financial Disaster
Diana Dykstra, CEO of the California Credit Union League, said that granting mortgages an extended forbearance would be ruinous for smaller institutions such as credit unions that depend on interest payments for their capital cushions.
“For the credit unions it will be a financial disaster,” said Dykstra, according to LostCoastOutpost.com. “If you’re looking at the way the bill is written, somebody can go a whole year without having to make a mortgage payment.”
The proposals are expected to be considered by the California State Assembly in the coming weeks.