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When Rent Doesn't Get Paid, Someone Pays A Price


This month, one-third of renters in America did not pay their landlord on time according to the National Multifamily Housing Council. So what happens when millions of Americans suddenly can't afford the rent? Mary Childs is co-host of our Planet Money podcast, and she follows the money from tenant to landlord to a multi-trillion-dollar international market.

MARY CHILDS, BYLINE: Emily Gordon is a server at a Mexican restaurant in Philadelphia - or she was, until last month, when she got laid off. And a couple weeks later, her rent was due - $750, which would be half of her savings.

EMILY GORDON: I had about 1,500 bucks saved. It would be half, yeah.

CHILDS: Philly, like a ton of other cities, has introduced a moratorium on evictions. But Emily decided it was fair to pay half rent.

GORDON: I did, you know, want to pay something because it's like a domino effect.

CHILDS: She knows everyone has their bills to pay, including her landlord, Ed Edge.

ED EDGE: I've got a lot of people paying nothing.

CHILDS: He owns four small buildings with a total of 14 tenants. Normally, Edge says he collects a bit over $9,000 per month. When we talked to him on April 2, he had gotten just $1,500. That is way less than his own monthly bills, the mortgages on his buildings. Now, he does have a temporary lifeline. In that big rescue bill Congress passed last month, there's a part about people not having to pay mortgages for up to six months. But that just delays when he owes it. It doesn't forgive it. And the missing rent from his tenants? That's likely gone forever.

EDGE: They're not ever going to be able to make enough money when they start working again to pay back rent, like, to pay the rents that they weren't able to pay beforehand.

CHILDS: In America, companies that collect mortgages from people like Edge usually don't actually own the mortgages. These mortgage servicers, as they're called, are actually also stressed because even though Edge can delay payments a few months, they still have to pass the money on like normal to the last stop on the chain, mortgage investors. They're the ones who are really owed the money. And indirectly, they may be you or me, lots of people with a pension or retirement account with a bond fund. Many bond funds buy mortgages, as do hundreds of hedge funds and life insurers around the world.

CHRIS ODINET: And that is the crazy, hidden architecture of homeownership in America. And it is breaking right now.

CHILDS: Chris Odinet is a law professor at the University of Oklahoma. And he wrote a book on mortgages.

ODINET: How can we expect these firms, these servicers, who in fact right now are financially weak, to make significant payments to investors when they themselves have no money coming in the door? When you pull the curtain back and you see how this actually works, most people say this doesn't really make any sense.

CHILDS: There is one last really important fact about the U.S. mortgage market. Most of those mortgage bundles - the ones in our retirement accounts - are backed by the United States government, even in non-pandemic times. And the reason is basically to enable Americans to get cheap mortgages. It's how we can get a 30-year fixed rate mortgage that we can refinance whenever we want. That is not really a product of a free market. And this government backing means that if the mortgage servicers can't pay mortgage investors, the U.S. government is ultimately on the hook to step in and make those payments. If renters can't pay the rent and their landlords can't pay the mortgage and the servicers can't pay the investors, then at some point, the government will pay.

Mary Childs, NPR News. Transcript provided by NPR, Copyright NPR.

Mary Childs
Mary Childs (she/her) is a co-host and correspondent for NPR's Planet Money podcast. Before joining the team in 2019, she was a senior reporter at Barron's magazine, where she covered the alternatives industry, the bond market and capitalism. Before that, she worked at the Financial Times and Bloomberg News. She's written about the pioneering of new asset classes like time, billionaire's proposals to solve inequality and diversity and discrimination in the finance industry. Before all that, she was also a Watson Fellow, spending a year traveling the world painting portraits. She graduated from Washington & Lee University in Lexington, Virginia, with a degree in business journalism and an honors thesis comparing the use and significance of media sting operations in the U.S. and India.