Singleton, Green, DeAngelo, Sumter & Lampitt Bill Would Create Three-Year Pilot Program to Help Struggling Homeowners Reduce Mortgage Principal
An Assembly panel on Thursday advanced legislation sponsored by Assembly Democrats Troy Singleton, Jerry Green, Wayne DeAngelo, Shavonda Sumter and Pamela Lampitt to create an innovative pilot program to help distressed New Jersey homeowners stay in their homes and avoid foreclosure.
"Behind every financially-troubled home is a family struggling to stay afloat and these families are part of larger communities struggling to rebound from the Great Recession," said Singleton (D-Burlington). "The time for praying that the market will heal itself is long gone. As lawmakers, it's our job to strengthen the fabric of our communities, particularly during times of crisis, and that's what this bill will do."
"With the second highest foreclosure inventory in the country, we can't afford to sit back while other states continue to rebound from the housing crisis that crippled our economy," said Green (D-Middlesex/Somerset/Union). "This innovative program will help stem the tide of foreclosures and jumpstart our economy."
The sponsors noted that New Jersey's foreclosure inventory is the second highest in the nation at 7.2 percent and the state also has the unfortunate distinction of being one of only four where the foreclosure percentage rose over the past year.
The bill (A-3915) would create the "Mortgage Assistance Pilot Program" to be run by the New Jersey Housing and Mortgage Finance Agency (HMFA). The three-year pilot program would allow homeowners who are in default of a mortgage owned by the agency, to lower the remaining principal owed on their mortgage if they have negative home equity.
"The goal of this pilot program is to help homeowners afford to stay in their homes while discouraging distressed homeowners, who are still current on their mortgages, from defaulting," said DeAngelo (D-Mercer/Middlesex). "If we can reduce foreclosures and short sales, we can help eliminate the factors that are stifling the recovery of our housing sector."
"It's time to work together to help distressed families and revive our economy," said Sumter (D-Bergen/Passaic). "We can no longer afford to sit back and hope the market resuscitates itself. Other states are moving forward and recovering at a far quicker pace than New Jersey."
The bill would help ease the state's housing crisis by allowing someone whose property value has plummeted below what they owe on their mortgage to have their principal lowered to an amount more reflective of current market realities. If approved, the remaining principal owed on the mortgage could be reduced by as much as 30 percent and the interest rate could be reset at current market rates, if lower than the existing rate.
In exchange, the homeowner must convey an equity share in the property to the HMFA equal to the percentage of the principal reduction. This would not have to be paid to the HMFA until the property is eventually resold or over a 10-year period beginning after the restructured mortgage is paid off.
"In addition to having one of the highest foreclosure rates in the nation, New Jersey has the distinction of registering the second longest foreclosure timeline at 1,002 days," said Lampitt (D-Camden/Burlington). "This adds insult to injury when faced with the nightmare of losing one's home. This pilot program could significantly curb that possibility for many New Jersey homeowners."
A homeowner who qualifies for the pilot program would be required to remain the owner of the property for at least five years in order to remain qualified for the benefits. However, if a homeowner sells the property in less than five years, an additional five percent of the sales price would be forfeited to the HMFA.
"The housing crisis that precipitated the recession essentially dismantled the American Dream for countless homeowners. It's time for us to step up, collectively, and help families across our state start reassembling that dream," added Singleton.
The agreements under the pilot program would only be available for a period of three years after the date of enactment to allow these novel agreements to be studied for their efficacy. The Department of the Treasury, in consultation with HMFA, would be required to study whether HMFA has minimized its losses and reduced foreclosures and short sales through the pilot program and to submit a report with its findings and recommendations to the Governor and the Legislature.
The measure was approved by the Assembly Housing and Local Government Committee and now awaits consideration by the full Assembly.