How Will NJ Prevent 'avalanche' Of Homeowner Foreclosures Once COVID Moratorium Lifts?

Thea Gleason juggles jobs to support her family of four in Little Egg Harbor, supplementing her salary as a high school English teacher with a second job at a storage facility.

She usually waitresses as well, but that gig fell through when the COVID pandemic hit, reducing her income. So her family applied to their lender for mortgage forbearance. It was granted, and allowed them to put off payments for a year, through the end of this month. “So we could buy food instead,” Gleason said.

Gleason, 47, recently received a letter from her mortgage lender that said the company would “work with her,” and provided instructions to apply for additional mortgage assistance.

Gleason’s understanding is that she can refinance her loan, or work out a repayment plan. She hopes they can move the nearly $10,000 she owes in delayed payments to the end of her mortgage, instead of increasing monthly payments or paying it back in one lump-sum check, which they can’t afford, she said.

Thea Gleason stands in front of her family's Little Egg Harbor home. Her family delayed mortgage payments for a year during the pandemic, and are unsure what her mortgage company will require of them once the forbearance period ends.
“I don’t have thousands of dollars to pay something back immediately because it’s not like I’ve built up savings," Gleason said. "So it’s scary.”

While New Jersey has temporary protections in place to keep families who couldn’t make mortgage payments during the pandemic in their homes, the Garden State is grappling with what to do when these grace periods end.

For years after the Great Recession, New Jersey ranked first in the nation for the highest number of foreclosures. How does it prevent that from happening again?

The Legislature is negotiating a bill that would require lenders to allow certain homeowners to put off or reduce their mortgage payments if their income was hit by the pandemic, and tack on missed payments to the end of the mortgage.

In March, the federal government allocated $325 million to New Jersey to set up a “Homeowner Assistance Fund,” but the agency that administers the program, the Housing and Mortgage Finance Agency, is still coming up with the guidelines. The agency also ran a small landlord relief fund that had its funding slashed after homeowners struggled to navigate the grant application process.

What is an eviction moratorium?
New Jersey is currently under a foreclosure moratorium, meaning that homeowners cannot be removed from their homes for missing mortgage payments through Jan. 1, 2022 — even if their property was sold at a sheriff’s sale or a final foreclosure judgment was entered.

What is forbearance?
Gov. Phil Murphy also announced in March that more than 150 financial institutions signed on to offer 90-day forbearance to borrowers. The Department of Banking and Insurance urged the banks to push the missed payments to the end of the loan, instead of demanding a lump sum payment when the grace period ends, but this wasn’t a requirement.

At the federal level, homeowners with a federally-backed mortgage can request forbearance before a June 30, 2021 deadline.

Nationally, there were 78% fewer foreclosure filings in the first three months of 2021 compared to the same period in 2020, according to data analysis from ATTOM Data Solutions and RealtyTrac. And as of May 2021, New Jersey had the fifth-highest foreclosure rate in the country, or one in every 7,679 properties with a foreclosure filing.

Gleason doesn't want to join that group.

“It would just be easier for everybody if whatever amounts you owe just get added to the end of your loan,” Gleason said. “Anything other than that would kill us financially, or could result in foreclosure because we have no ways to come up with huge sums of money right now. I imagine that’s the case for most people who took advantage of assistance like this.”

Will mortgage forbearance end?
Under S3669/A5684, which is making its way through state legislative committees, certain homeowners would be given mortgage forbearance — even if they are already in the middle of the foreclosure process — if they make a written request and certify that the COVID pandemic caused them to lose work or wages, or caused increased expenses such as for child care or funeral costs.

Any missed mortgage payments during the pandemic would be tacked on to the end of the mortgage, and not due in a lump sum at the end of the protection period.

“I am fearful of an almost avalanche of foreclosures that may happen if we don’t have something solidly in place and codified like this,” said Sen. Troy Singleton, D-Burlington, a sponsor.

How does forbearance work if this bill passes?
To qualify, a homeowner must make an income below the limit of 150% of the area’s median income, which varies by county. The homeowner must also have less than six months worth of the family’s 2019 household income in their bank accounts.

A homeowner can request for a pause or decrease in mortgage payments for his or her primary residence, or a building he or she lives in that rents out four units at most.

The current bill language includes a forbearance period lasting at least six months, but a homeowner could request an additional nine months, for a total of 15 months protection.

Housing advocates have hailed the bill but also outlined changes to strengthen the legislation.

Nearly seven years ago, Jody Stewart — along with other Superstorm Sandy survivors — founded the group New Jersey Organizing Project to help get housing assistance to those whose homes were destroyed by the storm.

“I lost everything I owned in 40 inches of water, and struggled to get paid from insurance companies and working with the government for any grants,” said Stewart, 63. “So fighting for forbearance and rental assistance for Sandy folks, some who are still not on their feet a decade later, informs our advocacy now.”

Stewart and other housing groups are pushing for a two-year forbearance period, increasing the income limit to qualify and making sure all banks and mortgage holders are required to offer the protections.

“We found during Sandy that a lot of out-of-state banks tried to fight the forbearance, because they said it was a state law, not federal,” Stewart said.

'I just have no recourse'
Advocates are also pushing to expand the forbearance relief to small landlords who rent out a couple of units but don’t live in the building.

Since mid-March of 2020, no tenant could be kicked out of their homes, even if they miss rent payments, so landlords across the state are losing tens of thousands of dollars with little recourse. Murphy recently signed a bill extending the eviction moratorium through January 1, 2022.

The New Jersey Apartment Association, which represents landlords, said mortgage forbearance wouldn’t be necessary if New Jersey ended the eviction moratorium.

“Putting a moratorium in place that restricts or eliminates rent revenue for landlords and then telling them not to worry about it because they can defer their mortgage payments for months, only to pay interest on that money for decades, is not sound public policy,” said David Brogan, the executive director of the NJAA. “While we appreciate the goal of the bill, it does not solve the problem that the government created when they implemented an open-ended eviction moratorium.”

Melissa Arcaro Burns was granted more than a year’s forbearance on the mortgage for her family home in Haddonfield, which she rents out to tenants. That has let her delay nearly $18,000 worth of mortgage payments.

But her tenants were sporadic paying the $2,300 monthly rent even before the pandemic, she said. In landlord-tenant court filings, she lists $13,800 worth of unpaid rent from December 2019 through May 2020, and Arcaro Burns said the renters haven’t paid her in any month that followed.

Her property’s bank account is now empty, she said, because she had to continue making about $13,000 in payments for property taxes, insurance, water and sewer, but didn’t have the rental income coming in to cover them.

“If I don’t pay my taxes, I risk the township coming after me, placing a lien on my home, and having that lien sold and losing the house,” said Arcaro Burns, 45. “This house has been in my family since the 1970s, and belonged to my grandparents until they sold it to us. My first child was born in that house and I envisioned passing it on to one of my kids. I’m really attached to that house.”

She looked into grants for small landlords, but the state’s program was only available to landlords with three to 30 units, not with a single property like her.

In a planning document, the New Jersey Housing and Mortgage Finance Agency outlines a proposal for how to start spending $326 million in federal funds subject to Treasury Department approval — launch a $10 million pilot program and offer up to $35,000 to certain homeowners to help them pay mortgage principal and interest, property taxes and homeowner's insurance. But this application is not yet up and running.

Arcaro Burns and her renters are in talks, trying to come to an agreement for a repayment plan. The tenants declined to comment.

“I just have no recourse,” Arcaro Burns said. “Once our account was totally depleted, and I really felt like I’ve done everything by the books, I really felt like I didn’t have anywhere to go.”

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