We are all living in a Matrix Economy. That deposit to your bank account may be called a stimulus check, but stop and ask yourself, “what is it stimulating?” With our economy at a near standstill, the $2 trillion dollar CARES Act and the additional $2.3 Trillion dollar “stimulus” from the Federal Reserve is simply simulating an economy. If there is one thing we’ve learned from Neo and Morpheus, no matter how well the simulation is planned there is always a glitch.
Our glitch happens to be in the Mortgage Forbearance plan laid out in the CARES Act. It’s a short-term solution with long-term consequences. To understand the glitch, you have to first understand the simulation:
Renters can’t pay rent
31% of renters are already unable to pay rent. But the Mortgage Forbearance plan glosses over this fact by taking care of landlords in hopes they will give renters a break.
Landlords & Mortgage Holders are forgoing payments
Congress’s Mortgage Forbearance plan allows landlords and mortgage holders the ability to forgo payments. How this forbearance will eventually be repaid is not defined in the bill. Some mortgage service providers are demanding repayment all at once or tacking it on to the end of the loan.
Mortgage Service Providers are still expected to pay investors
Mortgage Service Providers are the companies that service mortgage payments. These businesses take a small fee and then pass your monthly payment along to investors.
The Glitch — Even if these mortgages aren’t being paid, these providers are still expected to pass along their monthly payment to investors. While companies like Wells Fargo and Bank of America have the money to survive, smaller mortgage service providers are in immediate danger.
Investors get paid either way
Government entities or government-backed entities, like Fannie Mae and Freddie Mac, prop up the mortgage market and give Americans access to affordable home loans. These entities repackage loans as Mortgage-Backed Securities (MBS) that are sold to investors. An MBS is, “backed by the full faith and credit of the U.S. government, (which) guarantees that investors receive timely payments.” In every simulation the investors will get paid.
Do we let the Mortgage Service providers suffer and pay the investors directly? Or, do we fix the glitch and make sure this whole house of cards doesn’t tumble?
The Red Pill or the Blue Pill?
We are staring down the barrel of another 2008 financial crisis on top of the current economic situation. Congress has the choice between the red pill or the blue pill. The blue pill is living in ignorance and hoping the simulation continues. The red pill is facing reality and understanding how deep down the economic rabbit hole this issue goes.