NMHC and NAA appreciate Congressional action on the COVID-19 stimulus package that was signed into law today. This legislation, the Coronavirus Aid, and Economic Security Act, (CARES Act), includes important provisions intended to stave off total economic collapse in the wake of the coronavirus crisis.
Prior to the passage of this legislation, NMHC and NAA called on lawmakers to enact a number of provisions that would provide assistance to renters and property owners affected by financial hardships as a result of the COVID-19 outbreak. Read more about the suggested provisions here.
These past two weeks the NMHC and NAA government affairs teams has been working directly with Congressional leadership around the clock to help shape the multiple federal bills being drafted in response to the COVID-19 outbreak. NMHC and NAA have also been constantly communicating with Administration officials as they work to provide additional relief. Three different recovery packages have been passed over the last two weeks. The most extensive package, the CARES Act, consisted of over 800 pages and final language was not available to policymakers until shortly before the Senate vote. Given the magnitude of the task and the speed in which this package was moving, mistakes were made. Consequently, there are provisions that will be helpful to the industry and its renter, and there are others that will create substantial challenges challenges for rental property owners and the housing stability Americans need and deserve during this crisis.
For example, while we understand the intent of the national eviction moratorium included in the legislation, lawmakers inadvertently neglected to specifically tie the moratorium to those affected by the COVID-19 crisis. Instead, what should be a limited protective step is expanded to those who have not been financially impacted by the pandemic. This is already creating an expectation that unaffected renters do not have to meet their lease obligations. The language as drafted raises questions about whether housing providers may evict a resident for reasons other than nonpayment of rent. This could pose significant health and safety concerns for residents, housing providers and their staffs. The unintended consequences of the eviction moratorium will wreak havoc on the stability of the rental housing market and places it out of step with similar state and local actions. Congress must swiftly address this discrepancy.
Second, the current package provides substantial financial support to residents though HUD and unemployment insurance, however, more direct emergency rental assistance is necessary—particularly for those who do not presently receive federal housing assistance but now find themselves needing it.
Finally, at the urging of NMHC and NAA, Congress provided mortgage forbearance for multifamily property owners negatively impacted by the COVID-19 outbreak. The legislation, however, only provides this relief to owners with federally backed mortgages, such as those through the Federal Housing Administration (FHA), Fannie Mae and Freddie Mac. This protection needs to be expanded to all types of mortgages. Owners and operators are tasked with ensuring the viability of apartment communities. They, too, are experiencing financial hardships sometimes tenfold as renters in the communities across the country struggle.
Further, the provision limits forbearance to a 90-day time period, which is out of alignment with the 120-day eviction moratorium. Unless it is fixed, this disconnect could result in a mass wave of financial delinquencies and defaults from rental housing providers of all types and sizes, jeopardizing the stability of entire communities.
NMHC and NAA will continue to advocate on behalf of the rental industry to ensure millions of Americans nationwide will continue to have a safe, secure place to call home. For more information on NMHC’s advocacy efforts to date regarding COVID-19, please visit the COVID-19 advocacy webpage.
Detailed CARES Act Summary
The CARES Act was signed into law on March 27, 2020 to provide relief to affected individuals and industries suffering financial hardships as a result of the COVID-19 outbreak. Below is a detailed summary of inclusions relevant to the multifamily industry.
- Unemployed Americans are eligible for an extra $600 per week benefit for up to four months, on top of state unemployment benefits to make up for 100 percent of lost wages.
- Provides funding to pay the cost of the first week of unemployment benefits through December 31, 2020 for states that choose to pay recipients as soon as they become unemployed instead of waiting one week before the individual is eligible to receive unemployment benefits as is the traditional handling of claims.
- Expansion also creates temporary financing of short-time compensation paymentswhere employers reduce employee’s hours instead of laying off workers and the employees with reduced hours receive a pro-rated unemployment benefit.
- The expansion extends eligibility for benefits to those not traditionally eligible for unemployment benefits (self-employed, independent contractors, those with limited work history, and others).
- Recipients must be directly impacted by COVID-19 (sick, caring for sick or caring for child who is unable to attend school).
Pandemic Unemployment Assistance—Provides for a major expansion of unemployment benefits for those affected by COVID-19.
The Act provides checks of $1,200 to qualifying individuals and $2,400 to qualifying married taxpayers with an additional $500 for each child under 17 years of age. The checks are fully available to individuals earning up to $75,000 and married couples earning up to $150,000 and begin to phase down once those thresholds are reached.
Provides up to 90 days of forbearance for multifamily borrowers with a federally backed multifamily mortgage loan who have experienced a financial hardship as a result of COVID-19. Borrowers receiving forbearance may not evict or charge late fees to tenants for the duration of the forbearance period. The bill also prevents the owner from sending a notice of eviction until after the forbearance ends and then prevents the eviction from happening for 30 days more. Does allow for necessary evictions for criminal activity/endangering other residents, etc. to move forward.
Imposes a 120-day eviction moratorium at any property that has a mortgage backed by the federal government (HUD, GSE, USDA loan products). The bill also prevents the owner from sending a notice of eviction until after the forbearance ends and then prevents the eviction from happening for 30 days more. Does allow for necessary evictions for criminal activity/endangering other residents, etc. to move forward.
- Employee Retention Credit: The Act establishes a refundable employee retention tax credit for employers subject to closure due to COVID-19. The tax credit covers 50 percent of wages up to $10,000. Employers must exclude wages covered by employee sick leave tax credits provided for in the Phase 2 Coronavirus relief package. Employers eligible for the tax credit are those that: (1) see operations fully or partially suspended due to orders from a governmental authority due to COVID-19; or (2) see gross receipts falling by more than 50 percent from the same quarter in the prior year.
For employers with greater than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the COVID-19-related circumstances described above. For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order. The credit is provided for wages paid or incurred from March 13, 2020, through December 31, 2020.
- Delay of Payment of Employer Payroll Taxes: The Act enables employers and the self-employed to delay the payment of the employer side of Social Security payroll taxes. The provision enables the deferral of the 6.2 percent tax from the date of enactment through the remainder of 2020. Half of the amount must be repaid by December 31, 2021, and the other half must be repaid by December 31, 2022. Taxpayers with forgiven indebtedness arising from the small business loans authorized in the Act are ineligible to defer payroll taxes.
- Net Operating Loss Carryback: The Act allows net operating losses (NOLs) generated in taxable years beginning in 2018, 2019, and 2020 to be carried back for five years. The provision also eliminates the 80 percent taxable income limitation to allow an NOL to fully offset income. Under current law, NOLs cannot be carried back. Thus, eligible taxpayers can amend prior-year returns and claim tax refunds.
- Suspension of Limits on Excess Business Losses: The Act suspends the limitation of excess business losses applicable to pass-through businesses and sole proprietors that would otherwise be applicable for 2018, 2019, and 2020. This provision will help impacted taxpayers benefit from the NOL carryback described above.
- Limitations on Business Interest: The Act increases to 50 percent the 30 percent business interest limitation rule for taxable years beginning in 2019 and 2020. Special rules apply to partnerships. Real estate taxpayers to whom the limitation applies may still elect out so long as real property is depreciated under the Alternative Depreciation System instead of MACRS.
- Recovery Rebates to Individuals: The Act provides checks of $1,200 to qualifying individuals and $2,400 to qualifying married taxpayers with an additional $500 for each child under 17 years of age. The checks are fully available to individuals earning up to $75,000 and married couples earning up to $150,000 and begin to phase down once those thresholds are reached.
- Use of Retirement Funds: The Act waives the 10 percent early withdrawal penalty for withdrawals of up to $100,000 from qualified retirement accounts for COVID-19 related purposes. Distributed amounts could be recontributed to a qualified retirement account over within three years. Tax can also be spread out over three years on distributed payments.
- Waiver of Required Minimum Distribution Rules: The Act waives required minimum distribution rules from certain tax-favored retirement plans for 2020.
- Deduction for Charitable Contributions: The Act provides taxpayers who do not itemize deductions the ability to deduct up to $300 in charitable contributions in 2020. It also waives certain limitations applicable to deductions claimed by individuals and corporations. For individuals, the 50 percent of adjusted gross income limitation is suspended for 2020. For corporations, the 10 percent limitation is increased to 25 percent of taxable income.
- Exclusion of Certain Student Loan Payments: The Act excludes up to $5,250 from employee income for student loans repaid by an employer after the date of enactment and through 2020.
Provisions for Businesses
Provisions for Individuals
- Tenant-Based Rental Assistance – $1.25 billion. These funds will preserve Section 8 voucher rental assistance for seniors, the disabled, and low-income working families, who will experience loss of income from the coronavirus
- Project-Based Rental Assistance – $1 billion. This additional funding will make up for reduced tenant payments as a result of coronavirus. Preserving this critical housing assistance will prevent low-income families and individuals from being at risk of homelessness.
- Public Housing Operating Fund – $685 million. These funds will provide Public Housing Agencies with additional operating assistance to make up for reduced tenant rent payments, as well as to help contain the spread of coronavirus in public housing properties.
- Community Development Block Grant (CDBG) – $5 billion. CDBG is a flexible program that provides communities and states with funding to provide a wide range of resources to address COVID-19, such as services for senior citizens, the homeless, and public health services. Funding will be distributed using formula.
- Homeless Assistance Grants – $4 billion. These funds will enable state and local governments to address coronavirus among the homeless population. These grants, in combination with additional waiver authority, will provide effective, targeted assistance to contain the spread of coronavirus among homeless individuals. These grants will also provide state and local governments with homelessness prevention funding for individuals and families who would otherwise become homeless due to coronavirus.
- Native American Programs – $300 million. These funds will be used to prevent homelessness due to lost income from the coronavirus, as well as to contain the spread of coronavirus on tribal lands. These programs provide flexibility to local tribal governments and Tribally-Designated Housing Entities to respond to local conditions and needs.
- Housing Opportunities for Person with Aids (HOPWA) – $65 million. HOPWA is dedicated to the housing needs of people living with HIV/AIDS by giving grants to local communities, states, and nonprofit organizations for projects that benefit low-income persons living with HIV/AIDS and their families.
- Section 202 Housing for the Elderly – $50 million. These funds will maintain housing stability and services for low-income seniors. Seniors are particularly at risk from the coronavirus.
- Section 811 Housing for Persons with Disabilities – $15 million. This additional funding will make up for reduced tenant payments as a result of coronavirus.
- Fair Housing – $2.5 million for additional fair housing enforcement.
The Act includes, $17.4 billion for the U.S. Department of Housing and Urban Develop (HUD).
Of particular importance is language for Sec 8 funding, CDBG, TBRA, PBRA and the Public Housing Operating Fund, allowing the HUD Secretary broad waiver authority for any provision of any statute or regulation that the Secretary administers in connection with the use of amounts made available (except for requirements related to fair housing, non-discrimination, labor standards, and the environment), upon a finding that any such waivers or alternative requirements are necessary to expedite or facilitate the use of such amounts to prevent, prepare for, and respond to coronavirus. Below is a list of the HUD program funding levels included in the Phase 3 package:
Paycheck Protection Program
Provides $349 billion for Small Business Interruption Loans for companies of not more than 500 employees. Allowable Uses—payroll costs; health care costs/premiums; salaries; mortgage payments; rent; utilities; interest on other debt obligations.
Increases the maximum 7(a) loan amount to $10 million through December 31, 2020 and provides a formula by which the loan amount is tied to payroll costs incurred by the business to determine the size of the loan, not to exceed $10 million.
Average total monthly payroll costs x 2.5= loan size; where payroll costs include salary, vacation, insurance, retirement, leave, and state\local payroll taxes
Although the uses are broader than just payroll, see above, there will likely be no excess funds once payroll costs have been paid to pay the other obligations such as mortgage or rent payments.
SBA Loan Forgiveness
Establishes that the borrower shall be eligible for loan forgiveness equal to the amount spent by the borrower during an 8-week period after the origination date of the loan on payroll costs, interest payment on any mortgage incurred prior to February 15, 2020, payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020.
The amount forgiven will be reduced proportionally by any reduction in employees retained compared to the prior year and reduced by the reduction in pay of any employee beyond 25 percent of their prior year compensation. Borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period.
Troubled Debt Loans
Banks that defer loan payments as part of a forbearance will not be required to reclassify the loans as Troubled Debt Restructuring loans. TDR would have required the banks to hold a higher level of capital for the loans. This will free up capital and liquidity for the banks which is critical to continue to meet the demands of their customers.
For banks presently subject to the new Current Expected Credit Losses (CECL) accounting standards they will not be required to comply with any CECL capital requirements for new loans which will free up capital.
Federal Reserve Action under Section 13 (3)
Treasury Secretary Mnuchin said that the Federal Reserve has been and will be drawing on its powers under Section 13 (3) of the Federal Reserve Act to inject liquidity into the US Economy. The Secretary said that the amount may total $4 trillion and is targeted to help sustain the economy over the next 10 weeks at which time an assessment will be made if further support is needed. Support so far has been through the enhanced support of a: 1). The Commercial Paper Funding Facility, used to backstop the short term funding used by many companies; 2) The Primary Dealer Credit Facility, used to provide liquidity to the major broker dealers who make markets in the short term funding markets; 3) A Money Market Liquidity Fund to support the increased demand for liquidity from money market funds; 4) use of the MMLF to help support the municipal bond market to help support localities to continue to meet their financial needs. The remaining $4 trillion will be directed to support businesses through direct lending programs targeted to keep the broad economy going. The Treasury Secretary said, “the plan is broad-based to help small and large businesses get through the next 90 to 120 days.”
Credit Protection During Covid-19:
Furnishers to credit reporting agencies (like apartment firms, credit card companies, etc.) who agree to modified (rental) payments with respect to an obligation or account of a consumer that has been impacted by COVID-19, must report such obligation or account as “current” or as the status reported prior to the accommodation during the period of accommodation unless the consumer becomes current. Such credit protection ends at the later of 120 days after enactment of the legislation or 120 days after the date the national emergency declaration related to the coronavirus is terminated.