Here's what it would take for your rent to be canceled

The largest relief package ever approved by Congress, the CARES Act, offered $2 trillion in unemployment benefits, funding for hospitals, bailouts for industries, and a fund (that has already run dry) for small business loans. The relief package also delayed eviction and foreclosure notices for homeowners with federally-backed loans, like the ones financed through Fannie Mae or Freddie Mac, which accounts for the needs of just under half of America's homeowners. But with the coronavirus outbreak far from over, and social distancing orders extended for several more weeks across the country, some people are starting to wonder what total rent forgiveness might look like for Americans.

As we head into another month of shelter-in-place orders, that means another rent or mortgage payment is coming due at a time when 30 million Americans have lost their jobs. Some cities, like Washington, D.C., and New York City, have already put in place rent freezes or moratoriums, but political organizations and leaders are calling for a solution that does more than put a Band-Aid on a broken bone.

New York Rep. Alexandria Ocasio-Cortez (D) said last month that she'd already discussed the issue with New York Gov. Andrew Cuomo (D). “People aren’t striking because they don’t feel like paying rent. People are striking because they can’t pay rent,” she said. The remarks come after Ocasio-Cortez gave an impassioned speech on the House floor, saying that if her Republican colleagues truly had any "urgency" around coronavirus relief funding, they "would legislate like rent was due on May 1." In response, Cuomo this week said renters can't be charged late fees and extended the state's ban on evictions until August. He also suggested renters should be able to put their security deposit toward a month's rent if they can't cover it now.

Rent forgiveness would assist the lowest income renters who work in the industries hardest hit by the pandemic, such as restaurants or gig economy jobs. Renters are less likely than homeowners to have savings, nor do they have an asset in the form of property to leverage. Missing a mortgage payment, meanwhile, can trigger late fees — more money owed that an individual doesn't have on hand — and, eventually, foreclosure.

Still, forgiving rent and mortgage payments would require buy-in from landlords and property-owners who have their own expenses to pay, too — which means going up the chain to the financial institutions backing these properties. Here's what it would take to get real rent and mortgage forgiveness in the U.S.

What would it look like if Congress passed rent and mortgage forgiveness?

There are 77 million owner-occupied housing units in the United States, according to the Census Bureau, and about 43.8 million renters. Democratic Rep. Ilhan Omar (Minn.) introduced a bill last week to halt all rent and mortgage payments for the "duration of the coronavirus pandemic." Per Omar's bill, dubbed the Rent and Mortgage Cancellation Act, renters would have their debt completely forgiven for a full year, unless the act is extended further by Congress. Ocasio-Cortez said this week that she would co-sponsor Omar's bill.

That of course means rental property owners would not generate revenue for a full year either, though. So the proposed legislation also addresses that issue by calling for the establishment of a "relief fund" for home and property owners. Non-payment would not impact a renter or property owner's credit score, a crucial stipulation to protect the long-term financial health of these individuals.

Rent forgiveness is different from deferred payments, which would saddle renters with the responsibility of paying for housing eventually. In other words: Deferring rent for three months because Americans' incomes have been slashed due to coronavirus would only mean that on the fourth month, they'd be expected to pay four months' worth of rent. The math doesn't really make sense. Forgiveness would indicate that the payments that are missed won't come immediately due.

A rent deferral situation would "nearly double their monthly payment, a crushing burden for most renters," writes the Urban Institute's Laurie Goodman. "At the same time, if they simply do not repay the deferred amounts, property owners have little recourse," which is why government action is needed to mediate. Landlords have financial obligations to their servicers and investors, so they'd need aid to make up that shortfall.

What makes Omar's legislation different from what was included in the CARES Act is that under her bill, Congress would halt all payments to both private and public debt-holders, not just the ones that are federally backed. While the CARES Act halted eviction proceedings for one-quarter of American renters, not all landlords are following the guidance — and it's unclear what the consequences are if they don't. Furthermore, the U.S. Department of Housing and Urban Development doesn't have the legal room to halt evictions and has little say as to what goes on the rental market, so any congressional action on rent payments would likely be more comprehensive.

While not every renter might need rent forgiveness, Corianne Payton Scally of the Urban Institute tells Mic that about half of all renters in the United States spend half their monthly income on rent payments.

What are landlords' roles in this?

There's a concern that blanket forgiveness of all rental payments might have a "domino" effect, Scally tells Mic. "We do know that renters as a whole have lower incomes and are more vulnerable to financial shocks," Scally says. But half of all units are owned by individual "mom-and-pop" landlords who operate with narrow profit margins themselves. Without their scheduled payments, they may find themselves in a precarious financial situation too.

Generally speaking, landlords are part-business owners, part-intermediaries. They collect payments from renters and then turn around and pay their mortgage to what are known as mortgage servicers. A mortgage servicer then pays some of their fees to a mortgage investor, who is often backed by the federal government. If a landlord can't pay a mortgage servicer, that could cause a "spiral" effect, according to Scally.

There are a number of costs of managing a rental property that landlords have to account for too, Scally says, such as insurance, debt on the properties, maintenance fees, and staff. A rent forgiveness plan has to include a pathway for landlords to not receive money from tenants without defaulting on their own loans and payments.

When might rent and mortgage forgiveness kick in?

If passed, the Omar bill would cover the "duration" of the pandemic, and the debt would be forgiven for a full year. The bill would impact rent and mortgage payments retroactively, meaning that people who paid in March or April would be refunded.

While a good step, the legislation is also chasing the problem. In New York City, where the coronavirus has hit hardest in the U.S. and just over two-thirds of residents are renters, about 30% of those people didn't pay rent in April. The idea is that residents shouldn't have to worry about making rent, especially if there's no way to work.

So far, the stopgaps put in place by individual states have called for moratoriums on eviction proceedings, halts on rent payments, and halts on mortgage payments — all with a time stamp of 60-90 days. Omar's bill would extend those timelines.

Cuomo, however, has resisted calls to take more sweeping action in his state. Answering a question Thursday about what happens after rent and eviction moratoriums are lifted, he said, "I can't tell you what's going to happen two or three months from now. Whatever happens, we will handle it at the time."

What would happen to the housing market?

It's important to note that we're not just talking about residential housing. Rental payments from commercial properties, like restaurants and small businesses, would be frozen, too.

Though federal agencies don't have a direct pathway to addressing rent payments, the U.S. Securities and Exchange Commission can buy bonds and mortgage-backed securities, which are tied up with insurance companies and pension funds. In other words, the federal government has a vested interest in making sure that the mortgage market stays afloat, and the rental payments are a fundamental part of this.

What are the odds rent forgiveness passes?

Whether or not Omar's bill will make it through Congress is unclear. It would stand to reason that it would face long odds in the Republican-controlled Senate, where Majority Leader Mitch McConnell has made noises about the rising deficit when asked about further relief packages. Rent and mortgage forgiveness is also the kind of left-wing policy that has historically scared centrist Democrats, and it's worth noting that the most prominent lawmakers to sign on to Omar's bill are also the most noteworthy progressives.

Still, the coronavirus pandemic has shifted all sorts of political lines. Red and blue states have adopted a number of social safety net policies that would have been disregarded in "normal" times, like the direct cash infusion to Americans via a one-time stimulus check.

But given how difficult it was for Congress to agree on that one-time infusion of cash. That doesn't mean a compromise won't be made, however. With more and more Americans filing for unemployment each week, the burden of paying rent and mortgages is clear, and it'll take more than temporary stays on evictions to keep the country out of a coronavirus-induced housing crisis.