Evictions may spike early in 2021 unless Congress acts to extend the protections in the CARES Act the New York Times reports. 30 million people in over 10 million rental units may be evicted in the coming months unless some relief is extended or new relief is provided.

Many of these renters have been hurt the worst by the covid-19 pandemic. They were workers in businesses forced to close early in the pandemic. Many of the businesses may have reopened but we still have 10 million fewer jobs today than we did at the start of the pandemic. Most of these are lower income workers who are more likely to be renters.

Many families are food-insecure as evidenced by long lines at food banks on the evening news. The National Low Income Housing Coalition estimates that almost half of all renters, over 20 million renter households, were paying more than 30% of their income in rent. And half of this group were paying over 50% of their income in rent. These are the families at highest risk.

In their report the National Low Income Housing Coalition estimates assesses the broader implications of a potential dramatic rise in evictions including:

Many people are at risk. The trickle down effects of the problems may have broad and long-lasting impacts on markets.

How will the federal government help? Since the expiration of the $600 weekly supplemental unemployment payments there has been no action to support those who have lost their job. The Washington Post reports 'leaders in Congress remain far apart on a stimulus deal' though one current proposal includes $25 billion. They also cite some scary statistics on both the number of people who are behind on their rent (nearly 12 million renters will owe an average of $5,850 in back rent and utilities by January, Moody’s Analytics warns) as well as delinquent utility payments (up by two-thirds in example states NH and PA). Loss of electricity or water can also be devastating to families unable to pay their bills. But the impact of these problems may extend to the rest of the economy as they note:

Given the loss of 10 million jobs many home-owning families are likely seeing a reduction in income. This is bound to have an impact on foreclosures and evictions.

Some portion of the 9% are likely to struggle further leading to foreclosure down the road. While 'house rich' the borrowers' delinquency may preclude a straight refinance unless they can bring the loans current. This will take time and will require that jobs come back in significant numbers. Unfortunately they won't be able to take advantage of historically low interest rates which would reduce their financial burden since the only available rates may be much higher.

Home values have increased significantly in many parts of the country so selling may be the only viable action to take. As more homes come on the market home value increases may slow. The higher home values should insulate lenders from losses on defaults. The bigger risk may be the prepayment on these loans.

If a large number of renters face eviction what will that mean for landlord cash flow and their ability to service their mortgage loans? This is a tough question with many uncertainties.

First and foremost is how many of their tenants will be evicted? And how easy will it be to replace them? Vacancy rates will vary across the country as will the eviction rates. Cash flows may be impacted for a long time to come. This will, in turn, impact the value of the property.

Many property owners may have refinanced recently to take advantage of low rates. What is the current value of the property? And how much equity does the owner have? Will they be able to afford both debt service and property taxes? Just how stretched the landlords will likely impact their actions on selling or continuing to hold the properties. The risk is that deferred maintenance will hurt tenant retention and the ability to attract new tenants at higher rents. Cash flow issues could lead to a steady decline in property value. This will all be a function of how long it takes for jobs and tenant financial positions to improve.

Renters who face eviction will see their lives disrupted. How will the lenders they borrow from be affected?

If these customers have not been paying their rent there's a real risk that this will extend to the borrowings soon if not already. After eviction they will need to come up with a first month's rent and security money for their new home. The only source of cash may be deferring other payments. This can only be bad news for lenders.

Federal action could help lessen the risk. But there's no doubt that once eviction moratoriums end many families will be at risk. Millions of displaced renters will put a long-term drag on the economy.

The time it takes to bring all of the lost jobs back will impact not just actual short-term losses. Historical loss data used to estimate future losses under CECL will need to be reviewed carefully to assess to what degree to discount the higher loss rates during this time. Each lender will need to assess the impact based on expectations of future economic performance. Longer-term loans might have no discount applied at all if the assumption is that these higher delinquency and loss rates will account for higher risk during a future recession. For short-term loans the discount may be severe.

This highlights one of the complexities of CECL -- how to use historical data as a starting point for forecasts that need to account for likely future economic conditions. This will be especially challenging for smaller lenders who may see more erratic loss rates because they have smaller portfolios. This highlights one of the advantages of pooled data.

Beginning the process of estimating losses under CECL soon will give lenders time to take all of these factors into account. They will also be able to gather data today as events unfold that they will be able to use later as they evaluate how to use historical loss data. Accurate forecasts will require both data and careful consideration.