How the House Version of the HEROES Act could Impact Consumer Debt

On June 1, 2020 a 3-trillion dollar second-wave stimulus package named the HEROES Act (Health and Economic Recovery Omnibus Emergency Solutions Act) passed the United States House of Representatives by a margin of 208 to 199.

While the relentless tug-of-war between the Democrat-controlled House of Representatives and the Republican-led Senate leaves the full passage of this bill in question, the provisions in the bill that address the massive economic fallout of the pandemic could be included in negotiations going forward in the Senate. After Federal Chairman Jerome Powell testified to Congress earlier this month that additional fiscal stimulus was needed, support for negotiating on these fiscal provisions received a major boost.

So let’s take a look at what impact the HEROES Act could have on finance, debt and the housing markets, as portions of this bill include suspension of negative credit reporting, expanding the moratorium on foreclosures and rental evictions as well as funding for debt collection companies.

It is worth mentioning that the strongest bi-partisan support is seen in the modification of the Paycheck Protection loan program, an SBA loan program designed to provide incentives for small businesses to keep their staff on payroll. Just last week, Treasury Secretary Seven Mnuchin told Congress that he “has continued to loosen the rules of the Paycheck Protection Program to make sure the vast majority of borrowers will have at least some of their loans forgiven,” according to the Washington post. (https://www.seattletimes.com/business/treasury-secretary-steven-mnuchin-loosens-restrictions-on-small-business-loans-to-ease-forgiveness-but-borrowers-to-remain-secret/) 

This could have an impact on the commercial property market and commercial rental market. Stimulus money in this program would allow small businesses that occupy strip-malls and the main streets of many US towns to continue operating--filling those spaces with paying tenants, avoiding debt collections.

When it comes to housing, the 43-million plus renters in the United State were undoubtedly overlooked in the previously passed CARES Act as housing provisions were aimed at mortgage holders. However, the HEROES Act as it currently stands, aims to provide roughly $100 billion for rental assistance.

Exactly how would rental assistance work?

Currently, a nationwide grant rental assistance program would be used to verify a tenant’s inability to pay. From there, vouchers would be given to cover rent and utility costs, as well as extending the ban on evictions for past-due or unpaid rent up to one year after the enactment date. The provision would inject nearly $100 billion into rental assistance programs.

What about homeowners?

The current form of this bill provides over $75 billion in homeowner assistance, aimed at preventing mortgage defaults and real estate foreclosures.

Currently, borrowers are required to request forbearance directly through their individual mortgage provider. However, these providers have overwhelmingly seen a flood of requests-slowing down relief and much needed financial assistance. This bill would provide automatic forbearance after March 13, 2020 for missed mortgage payments of at least 60 days, and allow additional forbearance for an entire year thereafter. This provision looks to alleviate individual lender backlog and expedite homeowner relief.

Eligibility for forbearance applications are extended beyond the current requirements in the CARES act. However, the borrower must confirm Covid-19 had a detrimental impact on their finances to qualify for this stimulus provision.

Is there any assistance given to rental property owners?

Yes, this bill would offer residential rental property owners relief by providing long-term, low-cost loans, thereby allowing them to defer payments until six months after the date the HEROES Act is enacted.

Additionally, multifamily mortgage borrowers would be able to request forbearance for up to an entire year. The current allowance is only 90 days.

Another provision for rental property owners requires the Fed to establish a credit facility for residential rental property owners in order to temporarily compensate them for financial losses caused by reductions in rent payments and moratoriums.

How does it differ to the CARES act?

The CARES Act currently allows for a moratorium only on federally backed mortgage loans for 60 days. While some government agencies have expressed they would extend this past 60 days, the HEROES Act aims to enact a national uniform foreclosure and eviction moratorium for one year on all mortgages. However, this leaves in question the ability for many mortgage loan servicers themselves to stay in business without receiving rental payments or the ability to recover lost payments. Congress does however, recognize this issue. The HEROES Act specifically implies mortgage servicers remain eligible to continue receiving funds from the Treasury Department, but stops short of instructing the Fed on how to proceed. It is apparent the details of this need to be worked out. 

What will be the impact for debt collectors?

The HEROES Act also includes provisions in regards to long-term, low cost loans to debt collectors. Aimed at compensating debt collection businesses, analysts see this as a way to appease the industry and strengthen the debt-collection moratorium previously passed as 120 days after the pandemic is over. Provisions surrounding debt-collectors are proving to be one of the toughest sticking points in getting bi-partisan support this bill needs to pass. (Lang ,Hannah, AmericanBanker.com https://www.americanbanker.com/list/cheat-sheet-7-measures-in-house-coronavirus-bill-that-matter-to-banks)

How will it impact consumer credit reports?

In regards to negative credit reporting, the HEROES Act would build on current debt reporting requirements in the CARES Act. Negative credit reporting would be suspended for those affected by Covid-19 for the duration of the pandemic, plus 120 days. This includes banning ALL reporting of medical debt related to Covid-19. This bill includes additional provisions for consumers to receive free credit reports with credit scores and restricts altering credit scoring models that identify borrowers as ‘less creditworthy’ during the pandemic. 

As you can see there are countless financial provisions included in the current form of the 3-trillion dollar HEROES Act. While bi-partisan support is not currently predicted for the current state of this bill in the Senate, there are provisions expected to make it into the final legislation and eventual passage of some form. Many of those provisions include debt collection, foreclosures, evictions and housing and would impact nearly every single person in America.