New Bill in NJ- Mortgage Assistance Pilot Program
Posted by kevin on April 25, 2013 under Foreclosure Blog | 
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New Jersey has not done too well during the mortgage crisis. Unemployment has been higher than the national average. Foreclosures have topped 150,000 since 2008 with a backup of probably another 100,000. The courts have been reluctant to find problems with issues like predatory lending, consumer fraud and the like. The NJ Home Ownership Security Act, a supposed strong consumer protection act, turned out to be a paper tiger because basically, it does not apply to 99.9999% of mortgages. The mediation program has run out of money. At the same time, NJ has the second highest foreclosure inventory in the country and NJ is one of only 4 states where foreclosures were up in the last year.
Amid all this less than sterling news, I came across something positive. Assemblyman Troy Singleton from Mount Laurel proposed a bill (A3915) to create the Mortgage Assistance Pilot Program to be run by the New Jersey Housing and Mortgage Finance Agency (HMFA). The purpose of the program is to allow homeowners who are in default of a mortgage owned by HMFA to lower the prinicpal owed on the mortgage if the property is underwater (more is owed than the property is worth).
The specifics: Principal could be reduced up to 30% and interest could be reset to current market rates. For example, you owe $500,000 at 8% on a property worth $300,000. Under this bill , the principal could be reduced to $300,000 and interest (30 years fixed fully amortized) could come down to the low to mid 3’s. That could be a huge savings.
In return, the homeowner is required to retain ownership the property for 5 years, and upon sale, must share any appreciation with HMFA to the extent of the reduction (If the mortgage principal is reduced by 30%, HMFA gets 30% of the appreciation upon sale.) If the owner sells before the 5 year holding period, another 5% is tacked on HMFA’s share.
Back in 2009, I routinely included equity sharing as part of any settlement proposal that I made to a lender/servicer. It was routinely rejected. Now, it appears that the environment may be ready for such a concept. Besides the usual problems involved in turning a bill into law, my chief concern with A3915 is the scope of the legislation. Since the program only applies to mortgages owned by HMFA, how many homeowners will be able to get relief. If HMFA is going to go out and buy New Jersey mortgages to supplement its inventory, where is the money coming from? My concern is that A3915 will become another NJ HOSA- great on paper but of limited utility. Notwithstanding I commend Assemblyman Singleton for attempting to address a big problem here in NJ.
