Legislation sponsored by Assembly Democrats Troy Singleton, Jerry Green, Wayne DeAngelo, Shavonda Sumter and Pamela Lampitt to help homeowners with negative home equity avoid foreclosure and short sales, and prevent further agitating the state's troubled housing market continues to advance in the legislature with recent approval by the Assembly Appropriations panel.
The bill (A-303) would establish the "Mortgage Assistance Pilot Program" in the New Jersey Housing and Mortgage Finance Agency (HMFA) for a period of three years to allow homeowners, who have negative home equity and who are in default on an agency owned mortgage, to lower their principal balances by transferring shares of equity in the mortgaged property to the agency.
Negative home equity occurs when the remaining principal owed on a mortgage is greater than the current value of the home. New Jersey continues to lead the nation in foreclosure rates.
"The housing downturn of the past several years has substantially reduced the value of homes all across New Jersey, leaving many homeowners with negative home equity," said Singleton (D-Burlington). "This pilot program would allow New Jersey homeowners, with negative home equity and who have defaulted on a mortgage owned by the agency, to be able to afford to stay in their homes, reducing the foreclosures and short sales that are stifling the recovery of the housing sector."
"Unfortunately, for homeowners in default, foreclosure is not that far behind. This hurts the homeowner, the neighborhood where the property is located and our housing market, which is still struggling to bounce back," said Green (D-Middlesex/Somerset/Union). "This would allow homeowners to hold on to their properties and help avoid the ripple effects of foreclosure."
"Homeowners with negative home equity are much more likely to default on their mortgages than those with positive home equity, leading to more foreclosures and short sales, which further depress the value of neighboring homes," said DeAngelo (D-Mercer/Middlesex). "This bill gives these homeowners another option, and helps avoid any additional strain on the state's housing market."
"The high number of homeowners with negative home equity is a major impediment to the recovery of the housing sector," said Sumter (D-Bergen/Passaic). "The well-being of our economy depends on a robust housing sector. This program can help homeowners at risk of foreclosure keep their homes, and help prevent the state from falling further behind as it struggles to recover."
"The high rate of foreclosures in the state continues to bog down our housing market. To reverse this stubborn trend, we must be proactive," said Lampitt (D-Camden/Burlington). "Through this program, homeowners with negative home equity who are in default would be able to keep their homes and avoid the foreclosure or short sale route, which would further set our recovery back."
The bill's pilot program requires NJ HMFA to invite each homeowner who is in default of a qualified mortgage to apply for a principal reduction agreement. The bill would limit the reduction to no more than 30 percent, and would allow the interest rate to be reset to lower existing rates, if applicable. The bill would condition the principal balance reduction upon the homeowner's conveyance of an equity share to NJ HMFA equal to the percentage of the principal reduction.
As to NJ HMFA's equity shares, the bill would provide that the equity share interest does not give rise to a government property tax exemption on the property. This bill also denotes that an NJ HMFA equity share does not constitute a property encumbrance or lien for purposes of municipal tax sales. This means that a property tax foreclosure may be initiated and proceed without regard to an outstanding NJ HMFA equity share.
The bill would require the Department of the Treasury, in consultation with NJ HMFA, to produce a report on the pilot program that must be submitted to the Legislature and the governor no later than the first day of the tenth month following the conclusion of the three-year pilot program. Under the bill, the report must address the extent to which the pilot program enabled NJ HMFA to minimize losses and reduce foreclosures and short sales.
The bill would authorize the Commissioner of Community Affairs and NJ HMFA to adopt rules and regulations necessary to effectuate this bill's provisions.
If enacted, the bill would take effect on the first day of the fourth month next following the date of enactment, but would allow the Commissioner of Community Affairs and the Executive Director of NJ HMFA to take anticipatory administrative action prior to this bill's effective date.
The bill was approved by the Assembly Housing and Community Development Committee on January 27, 2016 and the Assembly Appropriations Committee on January 30 of this year. It now heads to the Assembly Speaker for further consideration.