The group of Americans that the Wuhan Coronavirus has impacted the most is the middle-class. Already a vulnerable demographic due to the enormous amount of debt it accumulated during the boom phase of the business cycle, the outbreak could create another financial tsunami that could damage the economy: defaults.
According to Moody’s Analytics, as many as 30 percent of Americans with home loans, or approximately 15 million households, could default on their mortgages if COVID-19 extends into the summer.
Financial institutions are giving their mortgage lenders as many as 180 days without penalties and fees to make a payment. While some may view it as a “payment holiday,” the truth is that it is a deferral and it will need to be repaid in the future.
So, if your mortgage payment is around $2,000 a month and you do not make a payment until July, then you are going to need to fork over $6,000 in back payments in addition to the other $2,000 in July. In total, you will have to come up with $8,000, which can be hard to do even if the economy returns to normal.
Whether the economy recovers by the summer or the coronavirus outbreak lingers until a vaccine is developed, the government and the Federal Reserve will likely bail out both parties.
Perhaps Washington will scoop up mortgages. Maybe politicians will execute a universal basic income.
Either way, the mortgage market is in store for one heck of a problem.
Leave a Comment