Dakota Beacon

Proposals are being made to address the severe economic crisis brought about by the coronavirus pandemic.  Amid terrible uncertainty, here is a plan which would cost the government nothing but perhaps save our sanity, our investments and perhaps even lives.

Yesterday restaurants in Minnesota suspended their dine-in services.  This will be an interruption of at least 10 days. It is uncertain, however.  It could be for far longer, depending on factors over which we have no control.  Obviously many are going to suffer loss of their livelihoods. Today the closing was expanded to salons, gyms, etc.  It is becoming clear that only truly essential work will go on in the usual sense. Already the stock market has been in a tempest.  People want to know what to do next.

The President and  others are considering giving Americans cash.  Well, we all like cash and it is more welcome than ever right now, but as a solution to a long-term or at least extended-term crisis, it won’t go very far.  Ask yourself how long you can survive on $1,000 or $2,000.

Here is a better idea - or rather a few ideas.

1. Declare a 12-month mortgage holiday.  This will have a lot of benefits besides just the obvious one.  First, the pandemic has been projected to last up to 18 months. After the first 12 months it could be evaluated for extension for up to another 6 months perhaps.  The provisions could be as follows:

   1. No monthly mortgage payment will be required for the next 12 months on existing mortgages..

   2. No interest or late fees will be accrued or charged for this period of time.

   3. Other aspects of the mortgage will remain unchanged and the payments will resume as before on the 13th month (unless extended).

   4. No foreclosures for 12 months.

   5. It would apply to investment mortgages (as in residential or commercial properties other than primary residences) in addition to the borrower’s home.

   6. It will be as though the year did not happen.

   7. The mortgage will be paid in full with one interest-free year added to the term of the mortgage.

   8. There will be no damage to the borrower’s credit rating.

   9. If the borrower is able to and wants to he can make the monthly payments as usual and nothing would change for him.

The above has obvious benefits for many people.  First, a homeowner’s mortgage is one of, if not his largest, monthly expenses.  This would relieve the pressure on whatever savings and unemployment he is relying on to support his family.  His family will be secure in their home as they deal with either illness or unemployment or both. It is better for children to have some stability during a crisis of this magnitude.  

If a property owner has a tenant, he will be able to reduce the rent greatly during this period.  The owner will also be in a position to maintain the property to decent standards. Tenants will be living in a healthy and safe environment while maintenance work can be kept up - so tradespeople such as carpenters, roofers, plumbers, electricians and others will be able to keep working at least on some level.  This helps them, the tenants, the landlord and the neighborhood. It might be possible that we won’t find our environment decline drastically while we are living under the cloud of this uncertainty and illness. No responsible, sane landlord wants to either lose a good tenant or see his property decline due to lack of maintenance.

While it is true that lenders won’t like this idea very much, are they really going to hurt so much?  They will be getting full payment on their mortgages - only one year later (31 years instead of 30 years on a 30-year mortgage, for example).  Everyone else is being asked to take this in stride. There is no reason why the mortgage industry should not. In the long run it could be better than cutting interest rates (or eliminating them altogether!).  And is it really better in the long run for mortgage holders to become owners of empty houses? Detroit’s history could indicate that it wouldn’t be. The feature about this crisis which makes this a reasonable and workable idea is that the interruption in income is temporary, but the immediate problem it causes is acute and severe.  There is no doubt that nearly all of the mortgage payments will be received at the end of the moratorium. The restaurants and shops will reopen, the theaters will reopen, life will resume. This isn’t a permanent problem.

Quite possibly many homeowners have contacted lenders to try to work out some kind of arrangement if they have lost their income.  The scenario would probably go like this: Homeowner: “I’d like to talk to someone about making an arrangement for paying on my mortgage - I’m dealing with this coronavirus lay-off right now, but I know that my job will resume as soon as I can get back to work.”  

Lender:  “I’m Phil. I can help you with this.  XYZ is aware of the national crisis and we are working with our customers to take care of this.  What we can offer right now is a three-month no-payment-due plan. Your next payment will be due on blah, blah, blah.  Should we set this up for you?”

Homeowner, relieved:  “This is great. I’m sure we can handle this.  I wouldn’t want to miss a payment but . . . “

Lender:  “No one wants that.  So, is there anything else we can do for you today?”

Homeowner:  “No, that is what I needed.  Thank you. I really appreciate your understanding and your help.”

Lender:  “No problem.  We appreciate your honesty and your efforts to keep in touch with us.”

Now the homeowner will breathe a sigh of relief.  His wife will wipe tears from her eyes. They will sit down to dinner and feel better.  Three months later the homeowner will send in his payment as agreed. A week later he will get it back in the mail, returned and unaccepted.  He’ll call to verify that the address is still right. Why was the payment returned?  

Lender:  “Mr. Jones, what is the problem today?
Homeowner”  “I am calling about my mortgage payment.  It was returned. What’s the problem?”

Lender:  “We aren’t accepting payments on this loan any longer.  The property is in foreclosure.”

Homeowner: “What!??  I spoke with someone in your office - Phil - three months ago about my work interruption due to the virus epidemic.  He said you would be ok with me paying late and we agreed that I would send this payment in now and I sent it as agreed so you would get it in time.”

Lender:  “Phil? He isn’t with us any longer.  I’m sorry. The terms of your mortgage are that if you miss three consecutive payments that the property will be foreclosed.”

Homeowner:  “What can I do? “

Lender:  “The balance of the mortgage is due and payable in 30 days.  The balance is $120,789. Otherwise we will have to take possession of the house.   Don’t feel bad, Mr. Jones. Everyone is getting hit by this problem. It’s what happens.  Is there anything else we can do for you today?”

So Mr. Jones has paid into his mortgage for 20 or 25 years.  It was his major investment. He had improved it, adding a room for his hobby, his wife has a garden she has tended for years.  He finished the basement Replaced the roof a couple of years ago, had it painted last summer. He was doing fine until March 17, 2020.  Then in a moment his world began to fall apart under his feet. He just didn’t know it until his phone call today, when he found out he no longer had a home.  This scenario is not an exaggeration. No. This is reality. It happened this way for people after the flood of 1997. It happened like this for my parents. They lost their house.  My advice?  Don't count on any "arrangement" you think you've made with your lender.

By implementing this “mortgage holiday” the administration would be echoing the “bank holiday” FDR declared upon taking office in 1933.  Only it would be far less dangerous and have less damage for our economy. If people wanted to borrow money and lenders wanted to lend it, new mortgages would not be affected by the holiday.  The stability in our country - economically and socially - would be well worth a little discomfort to the mortgage industry, and if necessary the federal government could set up some kind of emergency fund for them - it would be better than scattered grants of money and the administration and tracking of those grants and dealing with fraud.  There would be no involvement other than this possibility by the federal government. Life could go on, the grass will be cut this summer, the houses will be maintained, people will be secure in their homes. A home is a necessity. This would solve multitudes of problems.

There is only one thing that would stop our lawmakers from doing this - corruption.  Surely by now the banks have promised that they will reward those who hold office who oppose this.  If banks are permitted a windfall by foreclosing on maturing mortgages there will be generous gifts to politicians’ campaign chests and some will even find its way into the pockets of these people.  This is the only reason not to do this. Look - the government has all but put the tobacco industry out of business. We need lenders, that’s true. But if we don’t survive the coronavirus economic earthquake we can’t use them anyway.  If we knock interest rates down we’ll hurt them and to no real purpose. Better to do this - leave interest rates alonetry to get a drumbeat going on this.  It could help to save America., leave mortgages in place, just delayed by 12 months. Optionally. Many borrowers will keep paying on time regardless.    By proposing this we can perhaps ferret out which lawmakers are honest and doing their job of serving the people and which ones are crooks. Simple.

Here's a suggestion - take this idea to your congressman and your senator TODAY.  Tell your friends and neighbors, your fellow employees, your family members, to do the same - let's get a drumbeat going on this - it might help to save America.

One other idea . . . but it has to wait until tomorrow!

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