Editor’s note: Houston and Harris County are being hit hard by the dual challenges of COVID-19 and a slowing energy sector. To track their long-term impacts and understand how the region’s housing system is changing over time, the Kinder Institute for Urban Research has published “The 2020 State of Housing in Harris County and Houston” report. The project brings a wide range of housing-related indicators into one place and makes them accessible for all stakeholders. This blog post is part of a series related to the release of the new report.
This post is part of our “COVID-19 and Cities” series, which features experts’ views on the global pandemic and its impact on our lives.
The COVID-19 pandemic has impacted housing in both expected and unexpected ways since the initial national shutdown commenced in the Spring of 2020. Southeast Texas Housing Finance Corporation (SETH) serves the affordable housing needs of 20 jurisdictions in the Houston area, ranging from urban to rural in density. Our single- and multifamily programs each have experienced new challenges that have required new attention from us, our partners and the marketplace in general. Here we will highlight some key factors that we continue to manage.
Seeing cash-flow stress in multifamily housing
At the property level, our senior and family projects are each experiencing the consequences of the pandemic differently. After the initial push for our management companies to disseminate accurate information from the Centers for Disease Control and Prevention to our residents, we braced for the health and financial impact. So far, we have had no reported positive cases among the staffs or residents at our projects, but we and our management partners are keeping our eyes wide open. The focus continues to be the ongoing monitoring of health conditions at our senior projects, where the negative impacts on operations and project cash flow have been negligible.
Conversely, our family projects are demonstrating early indications of potential cash-flow stress. The stress is manifesting in two areas: Tenant rent delinquency rates, which was expected, and utility billings, which was unexpected. Neither of these variables are impacting our senior properties because, under normal circumstances, seniors are on fixed incomes and are already staying home for much of the day.
Family projects, under normal conditions, are empty during the daytime hours for five days each week. However, with everyone staying at home more now and using resources that normally would not be used during the day, the property utility bills have increased 15% to 50%, depending on the jurisdiction, project size and household size. With some households being impacted by job loss, delinquency also is up. Typically, delinquency peaks in January each year as some residents forget to pay rent on time after New Year’s or have overextended spending during the holidays. We now are witnessing typical post-holiday delinquency rates for April, May and June 2020. Most properties end the month with minimal delinquency due to assistance from United Way, other nonprofit programs or friends and family.
The work of government-sponsored enterprises (Fannie Mae, Freddie Mac, the Federal Housing Authority and the Department of Housing and Urban Development) to suspend evictions through debt service deferment programs, as well as assistance programs such as the Emergency Solutions Grants program, HOME and Housing Opportunities for Persons with AIDS (HOPWA), have received a lot of attention, and we would like to highlight a similar effort taking place at the state level.
The Texas Department of Housing and Community Affairs (TDHCA) has allowed for properties with TDHCA reserve accounts to repurpose funds originally set aside for maintenance and repairs or capital improvements to be used for grants of assistance to tenants who have had a sudden loss of income or increased household costs due to the pandemic. The grant — in an amount up to the household’s portion of the currently scheduled rent plus utility costs — would be distributed monthly. The grant would be transferred to the property’s operating account, which would be paid directly to the property to satisfy rent and directly to the utility on behalf of the tenant household.
Overall, our partners in the local marketplace are not yet seeing overwhelming pressure to force evictions for nonpayment of rent. And property owners are keenly aware that evictions only benefit the property if there is a high degree of confidence that a replacement tenant who can pay at least what the evicted resident could pay can be found. With unemployment rates as high as they are, managers are more inclined to arrange short-term payment plan options for the existing tenant before taking immediate steps to force an eviction.
Sample payment plan arrangements have been provided to the local apartment associations by the National Apartment Association as examples for property managers. The tenant’s ability to fulfill the obligations of the payment plan over the remaining life of the lease will enable the household to remain in the home. That being said, the likely economic fallout from the downturn in the oil and gas industry looms large on the horizon for our region and could very well be far more impactful on our region’s long-term economic stability than the COVID-19 pandemic. Retail jobs are fairly easily regained, but the loss of logistics, transportation and mineral jobs, which often lag in recovery, intensifies weakness in the local economy.
A number of impacts on single-family housing
SETH offers down payment assistance through several single-family-home purchase programs. The coronavirus pandemic and related stay-at-home orders have impacted several critical areas of those programs, leading, in part, to recent declines in the loan volume of SETH programs.
Houston home sales have fallen in May for the second straight month. As reported by Houston Association of Realtors (HAR), 6,671 single-family homes were sold in May — a 20% decline from 8,359 in May of last year. The slumping energy industry, which is a major employer and revenue source for other businesses, also is a large factor in falling home sales in the Houston area. The logistical difficulties of buying and selling, combined with the economic uncertainty, are keeping some buyers away. For many families, the dream of homeownership remains; however, for now, it may be a dream deferred.
Lender participation was a major issue for us in early March to mid-April — and it remains a factor we monitor— but we are now seeing an increase in lender engagement. Many lenders in our area and across the United States have suspended down payment assistance (DPA) programs because of concerns that mortgage loans in forbearance — payments are postponed or reduced — would not be eligible for purchase, leaving the lender with a loan that could not be sold. Also, these loans often exceed the industry standard loan-to-value ratios — ideally 80% — with an average of 104.8% LTV. Many warehouse banks also were concerned about the risk of these loans remaining in the pipeline for extended periods of time. As a result, many imposed stricter credit guidelines for loans with DPA.
Lenders also had difficulty keeping track of the rapidly changing landscape for programs. With programs nationwide making adjustments with little notice, it became very difficult to ensure they were following guidelines. SETH stayed in constant contact with our lender partners during this time, notifying them of program changes with clear communication via emails, posts, webinars and frequent reminders. Our lenders are an important part of our programs and keeping them informed is important to us.
Loan performance is another topic of concern for SETH. Our goal is to create sustainable homeownership opportunities for the communities we serve. Our programs have requirements that include fixed-rate terms and limits for debt-to-income to create an affordable payment. SETH also requires homebuyer education, which we believe creates a better educated homeowner. At the beginning of the pandemic, we had forbearance requested for almost 20% of our loans. Just the initial act of making the request will cause a loan to be labeled “in forbearance.” Many borrowers have continued to make their mortgage payment and appear to have only been looking into information about the forbearance options. As of early June, that number has lowered to 13%. We hope that with some economic improvements and the opportunity for people to begin working again, that number will continue to decline.
Our loan servicers are dedicated to providing assistance to our families and helping them to remain in their home. And SETH continues to monitor our programs so they remain a service to our community and an available product for our program partners.
The Kinder Institute for Urban Research and the Southeast Texas Housing Finance Corporation are part of the Houston Housing Collaborative, a diverse collective of nonprofit organizations, research institutions, financial institutions, public and private universities, builders, developers, neighborhood associations, advocacy groups and individuals working to fill the need for safe, affordable housing in Houston and Harris County.
Jonathan Campbell is the Deputy Director of SETH. Rhonda Mitchell is SETH’s Single Family Program Manager.