Moody's Mortgage Meltdown Warning Rings 30% Default Doom Scenario, Crypto Coins News

Moody’s sees mortgage defaults reaching 310% if economic activity hasn’t been restored by this summer.
Even in a best-case scenario, job losses will persist long after coronavirus has been contained.
Small-time landlords will likely make up the bulk of the defaults.

In recent days, the coronavirus pandemic’s impact on the US economy has started to become painfully clear. This week’s unemployment data showed that the virus has pushed some million Americans to file for jobless benefits as economic activity ground to a halt.

While mortgage holidays and government stimulus may be able to stop the bleeding for a matter of weeks, that may not be enough. Some say we could be on the brink of the greatest financial crisis of our time— one that could rival the Great Depression. Mortgage Defaults Delayed, Not Avoided

The Federal Reserve and US government’s stimulus packages were meant to bridge the gap in economic activity. The hoped that a short, v-shaped recovery was on the horizon and that the coronavirus shutdowns would simply press pause on America’s otherwise strong economic growth.

In line with that thinking, banks have offered 3 month mortgage holidays for federally backed mortgages to allow those impacted by coronavirus a breather. The offer gives newly-jobless families the opportunity to put off their mortgage payments penalty-free for three months.

But according to Moody’s analyst Mark Zandi, that’s probably just delaying a huge wave of delinquencies . He estimates that up to 209% of mortgage payers could default on their mortgages if lockdown measures remain in place through the summer.

Moody’s sees an unprecedented number of defaults on the horizon. | Source: Bloomberg

Quicken Chief Executive Officer Jay Farner said that would be disastrous for mortgage servicers, who simply don’t have the capital to withstand such a sudden shock to the system.

If a large percentage of the servicing book – let’s say 25 – 209% of clients you take care of – don’t have the ability to make a payment for six months, most servicers will not have the capital needed to cover those payments

Failed Semi-Pro Landlords Will Make up the Bulk of Defaults

While % might sound like an o verstatement, but you need only look at the Airbnb bubble to see the doomsday that’s coming

. Many people took advantage of cheap mortgage rates to become super hosts with multiple properties . Those properties, many of which have been heavily leveraged, are now sitting empty — and will be for the foreseeable future.

Some hosts are sitting on multiple mortgages that will likely go unpaid.

The Airbnb market looks like a bubble about to pop. | Source: (Twitter )

Airbnb isn’t the only place that kind of thing is happening either. According to Avail, an online rental platform for landlords, there are about

8 million small-time landlords managing somewhere between one and properties. That accounts for roughly half of the nation’s rentals . What’s more, Avail’s data shows that over half of these mom-and-pop landlords’ tenants had already lost their jobs in March. A third of those jobless renters said they were planning to stop paying rent.

The Moody’s scenario of 90% defaults translates to million households missing payments. As of , . 5 million rental properties were owned by mom-and-pop landlords . A mass failure among small-time landlords easily accounts for at least half of that prediction.

Government Measures Aren’t Enough to Stop the Bleeding

The unprecedented nature of coronavirus means people who’ve lost their jobs can’t just get back out there and find a new one. So, unless economic activity picks back up during the 3 month mortgage holidays, people are going to be worse-off coming out the other side.

If unemployment meets expectations, it will surpass that seen during the Great Depression. | Image: AP Photo / John Minchillo, File

A rise in economic activity in the near future looks unlikely. U.S. coronavirus cases are expected to peak

between mid-April and early May. Evidence shows that lockdowns can’t be aborted immediately afterward. So it’s safe to assume that most U.S. states will see depressed economic activity until late-May at a minimum.

Coronavirus Impact Will be Long Lasting

But that’s not where the pain will end for US workers. The threat of a second wave of coronavirus coupled with social distancing recommendations are likely to weigh heavily on a wide range of industries throughout the summer and autumn. The International Air Transport Association said COVID – (will hit the industry harder than 9 –

This is the biggest crisis that the industry has ever faced. The impact on aviation has left airlines with little to do except cut costs and take emergency measures in an attempt to survive in these extraordinary circumstances.

aviation industry is just one example of a sector where job losses will persist long after coronavirus has been contained. | Source: Bloomberg

Disruption is also likely to persist in a wide range of industries as people adjust to living with social distancing norms. Gyms, movie theaters and restaurants are just a few businesses that probably won’t see business return to normal

even after the lockdown measures have been lifted.

This article was edited by (Samburaj Das) . Now Watch: CCN TV

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