ASSEMBLY, No. 1440

STATE OF NEW JERSEY

214th LEGISLATURE

 

PRE-FILED FOR INTRODUCTION IN THE 2010 SESSION

 


 

Sponsored by:

Assemblyman  VINCENT PRIETO

District 32 (Bergen and Hudson)

Assemblywoman  JOAN M. VOSS

District 38 (Bergen)

 

Co-Sponsored by:

Assemblyman Conners

 

 

 

 

SYNOPSIS

     Mandates education program for “at risk” mortgage borrowers as condition for residential purchase or refinance.

 

CURRENT VERSION OF TEXT

     Introduced Pending Technical Review by Legislative Counsel

  


An Act establishing mortgage education program for certain borrowers, amending and supplementing the title and body of P.L.2008, c.127, and amending P.L.1988, c.29.

 

     Be It Enacted by the Senate and General Assembly of the State of New Jersey:

 

     1.    The title of P.L.2008, c.127 (C.55:14K-82 et al.) is amended to read as follows:

An Act providing residential mortgage education and assistance under certain circumstances, supplementing Title 46 and Title 55 of the Revised Statutes, amending P.L.1983, c.530, and P.L.1988, c.29; and making appropriations.

     (cf:  P.L.2008, c.127, title)

 

     2.    Section 1 of P.L.2008, c.127 (C.55:14K-82) is amended to read as follows:

     1.    This act shall be known and may be cited as the "Mortgage Education, Stabilization and Relief Act."

(cf: P.L.2008, c.127, s.1)

 

     3.    Section 2 of P.L.2008, c.127 (C.55:14K-83) is amended to read as follows:

     2.    The Legislature finds and declares that:

     a.     Many thousands of New Jersey homeowners are at risk of losing their homes as a result of mortgage foreclosures.

     b.    Foreclosures involve the loss of a family's home, often the family's most valuable financial asset, and foreclosures especially undermine the health and economic vitality of the urban neighborhoods in which a disproportionate share of foreclosures take place.

     c.     Foreclosures result in the loss of millions of dollars in assets, not only those of the homeowners who are the victims of foreclosure, but also adversely affect the property values of homes located in the vicinity of foreclosed properties.

     d.    The loss of a house often results in abandonment of properties, leading to significant costs and lost revenue for local governments, as well as harm to the neighborhoods in which properties are abandoned.

     e.     Many of these foreclosures could be avoided if prospective and existing homeowners had greater access to high-quality mortgage purchasing and refinancing education, in-person foreclosure prevention counseling, emergency financial assistance, or additional time during which to negotiate loan modifications or obtain refinancing.

     f.     There is a compelling public policy need for the State of New Jersey to provide the means by which prospective and existing homeowners can obtain mortgage related education, counseling, emergency financial assistance, and time to adjust their finances in order to avoid the future prospects of foreclosure, increase their ability to retain their homes, and to protect local governments and neighborhoods from the negative social, economic, and fiscal consequences of foreclosure and property abandonment.

     g.     New Jersey must ensure that neighborhoods are not adversely affected by properties that are abandoned as a result of foreclosure and become dilapidated eyesores in the community.

     h.     The Legislature recognizes that the potential for difficulties facing certain, financially at risk prospective homeowners, as well as the difficulties encountered by homeowners who are delinquent, or are in danger of becoming delinquent, on their mortgage payment does not lend itself to a "one size fits all" solution and therefore it is necessary to establish a number of programs to assist these prospective and existing homeowners.

(cf: P.L.2008, c.127, s.2)

 

     4.    (New section)  Sections 4 through 10 of P.L.    , c.   (C.        ) (pending before the Legislature as this bill) shall be known and may be referred to as the “Mortgage Education and Foreclosure Avoidance Program.”

 

     5.    (New section)  As used in sections 4 through 10 of P.L.    , c.   (C.        ) (pending before the Legislature as this bill):

     “Agency” means the New Jersey Housing and Mortgage Finance Agency established pursuant to P.L.1983, c.530 (C.55:14K-1 et seq.).

     “At risk borrower” means a prospective mortgagor on a mortgage to purchase a residential property, who has a credit score at or below 660, based upon the middle score derived from three independent consumer reports from three generally recognized consumer reporting agencies, pursuant to section 603(d) of the Fair Credit Reporting Act, Pub.L.91-508 (15 U.S.C.s.1681a(d)), or proposes a down payment towards a purchase of 15% or less of the property’s purchase price.

     “At risk refinancing borrower” means a prospective mortgagor on a mortgage to refinance involving a residential property, who has a credit score at or below 660, based upon the middle score derived from three independent consumer reports from three generally recognized consumer reporting agencies, pursuant to section 603(d) of the Fair Credit Reporting Act, Pub.L.91-508 (15 U.S.C.s.1681a(d)), and a calculated loan-to-property-value of 85% or higher.

     “Broker” means a “residential mortgage broker” as defined by section 3 of P.L.2009, c.53 (C.17:11C-53).

     “Consulting organization” means a HUD certified housing counseling agency, or other, similar organization recognized by the agency, that employs or otherwise contracts with at least one mortgage administrator and real estate administrator, and with which the agency contracts in order to develop, administer, and provide training for, the Mortgage Education and Foreclosure Avoidance Program established by this act.  The consulting organization, if other than a HUD certified housing counseling agency, shall not be required to comply with any HUD certified housing counseling agency requirements.

     “HUD certified housing counseling agency” means a community-based non-profit organization, as demonstrated by section 501(c)(3) of the federal Internal Revenue Code (26 U.S.C. s.501(c)(3)), which has been certified by the United States Department of Housing and Urban Development as experienced in housing counseling for at least three years prior to receiving certification, and additionally employs or otherwise contracts with at least one mortgage administrator and real estate administrator.

     “Lender” means any lawfully construed mortgage lender that is authorized to conduct mortgage business in this State.

     “Loan-to-property-value” means a calculated percentage relating to the loan amount of a mortgage to purchase or refinance the purchase of a residential property, relative to the current appraised fair market value of the property as determined by a real estate appraiser licensed or certified pursuant to the “Real Estate Appraisers Act,” P.L.1991, c.68 (C.45:14F-1 et al.)

     “Mortgage administrator” means an employee, director or contracted agent of a HUD certified housing counseling agency, or an employee, director or contracted agent of another, similar organization recognized by the agency, who is designated by the National Association of Mortgage Brokers, or its successor organization, as a Certified Residential Mortgage Specialist, in good standing for at least five years, and additionally possessing at least 15 years of mortgage industry experience, including at least five years with a principal business location within this State.

     “Program” means the Mortgage Education and Foreclosure Avoidance Program.

     “Real estate administrator” means an employee, director or contracted agent of a HUD certified housing counseling agency, or an employee, director or contracted agent of another, similar organization recognized by the agency, who owns residential property as a primary residence as well as owns investment residential property with at least 10 years of experience with investment ownership involving rental tenants.

     “Residential property” means an owner-occupied primary residence for an at risk borrower or refinancing borrower, that is either: a single-family one-unit house; an attached, semi-detached, or detached house; a condominium or cooperative unit; or owner-occupied two or three-unit house.

 

     6.    (New section)  a.  There is established in the New Jersey Housing and Mortgage Finance Agency a Mortgage Education and Foreclosure Avoidance Program, for the purpose of educating and assisting at risk borrowers and refinancing borrowers in order to avoid the future prospects of foreclosure for these borrowers.

     b.    The agency shall contract with a consulting organization to assist in the development, administration, and training for the program.  The program, as developed by the consulting organization, shall be proposed and adopted in regulation by the agency.  The program shall include:

     (1)   educational presentations and materials regarding mortgages, including, but not limited to, common terminology, advertising, mortgage applications, HUD statements, good faith estimates, escrow accounts, prepaid expenses, closing costs and fees, monthly payment obligations, documentation requirements, calculation and impact of credit scores, disclosure requirements, and income and credit analyses;

     (2)   educational presentations and materials regarding real estate transactions, including, but not limited to, the role of real estate brokers, broker-salespersons, and salespersons, and their relationship to buyers and sellers as buyers’ agents, sellers’ agents, and dual agents, the role of attorneys, inspectors, and appraisers, housing expense analyses, property taxes, buying and leasing options on transactions, including lease-purchase agreements, and landlord-tenant issues for properties with leasing options, including security deposits;

     (3)   an awarding of a standardized certificate of completion to at risk borrowers and refinancing borrowers, indicating completion of the educational component of the program set forth in paragraphs (1) and (2) of this subsection, the date of issue, and an expiration date following a reasonable length of time determined by the agency in regulation, for use by these borrowers, before expiration, to qualify for residential purchase or refinance mortgage transactions with lenders as set forth in section 8 of this act; and

     (4)   a monitoring system for participating at risk borrowers and refinancing borrowers by each administrator approved by the agency to administer the program pursuant to subsection c. of this section, which monitoring shall continue for two years after the date of the borrowers’ purchase or refinance following their participation in the educational component of the program, and provide for further educational or counseling opportunities by the administrator, or referrals by the administrator to other programs offered through the “Mortgage Education, Stabilization and Relief Act,” P.L.2008, c.127 (C.55:14K-82 et al.).

     c.     The program shall be administered to at risk borrowers and refinancing borrowers by HUD certified counseling agencies that are approved, following application to the agency, to participate in the program, or the consulting organization contracted by the agency pursuant to subsection b. of this section to assist in the development, administration, and training for the program.  The application form and process shall be set forth by the agency in regulation.

     d.    Any individual employed or otherwise contracted by an approved HUD certified counseling agency to administer the program shall not participate in providing the program to at risk borrowers or refinancing borrowers until that individual successfully completes the educational component of the program set forth in paragraphs (1) and (2) of subsection b. of this section.

 

     7.    (New section)  At the time of accepting any application for any mortgage for a residential property in this State, a lender or broker, as the case may be, shall provide a written disclosure to the applicant, prepared by the agency through regulation, informing the applicant of the requirements of this act concerning at risk borrowers and refinancing borrowers.  The applicant shall acknowledge receipt of this written disclosure from the lender or broker through a signed statement, and the original or an electronic copy shall be maintained by the lender or broker for a period as determined by the agency by regulation.

 

     8.    (New section)  a.  An at risk borrower or refinancing borrower shall not be eligible to close on any mortgage from a lender or through a broker in order to purchase or refinance a residential property unless the borrower possesses a valid, non-expired certificate of completion for the Mortgage Education and Foreclosure Avoidance Program, issued in accordance with paragraph (3) of subsection b. of section 6 of this act.  An at risk borrower or refinancing borrower possessing an expired certificate of completion may only be eligible to close on a mortgage by successfully repeating the program.

     b.    In order for a lender, or broker on behalf of a lender, to close on a mortgage loan with an at risk borrower or refinancing borrower, the lender or broker shall first request and obtain the valid, non-expired certificate of completion issued to the borrower.  Additionally, the lender or broker shall maintain, for a period as determined by the agency by regulation, a copy of the borrower’s certificate of completion.

     c.     Any mortgage loan between a lender, or a broker on behalf of a lender, and an at risk borrower or refinancing borrower shall be in violation of this act and subject the lender or broker to liability set forth by the agency in regulation, including, but not limited to, a civil monetary penalty, if the lender or broker does not request, obtain, and maintain an at risk borrower’s or refinancing borrower’s certificate of completion prior to closing on a mortgage transaction as required by this section.

 

     9.    (New section)  A lender or broker shall not be liable for a violation of this act if the lender or broker complies with the notice, collection and record keeping requirements for written disclosures and certificates of completion set forth in sections 7 and 8 of this act.

 

     10.  (New section)  In order to fund the program, there shall be a $25 Mortgage Education and Foreclosure Avoidance Program surcharge applied to each mortgage application processed by a lender or broker, payable to the Housing Assistance and Recovery Program Support Fund established by section 10 of P.L.2008, c.127 (C.55:14K-90), or, in the alternative, the agency may establish in regulation a fee for the program of not more than $150, charged to each participating at risk borrower or refinancing borrower, if the agency determines, in consultation with the Department of Banking and Insurance, that the program fee represents a more effective means of funding the program than the surcharge on mortgage applications.

 

     11.  The New Jersey Housing and Mortgage Finance Agency is authorized to promulgate rules and regulations, pursuant to the “Administrative Procedure Act,” P.L.1968, c.410 (C.52:14B-1 et seq.), to effectuate this program.

 

     12.  Section 2 of P.L.1988, c.29 (C.54A:6-22) is amended to read as follows:

     2.    Gross income shall not include payments and benefits directly received by a taxpayer under homeless persons' assistance programs, including but not limited to assistance in obtaining housing, temporary shelter and short-term financial assistance, as may be established pursuant to subsection h. of section 24 of P.L.1944, c.85 (C.52:27C-24), or benefits, including imputed income, received pursuant to the "Mortgage Education, Stabilization and Relief Act," P.L.2008, c.127 (C.55:14K-82 et al.)

(cf: P.L.2008, c.127, s.20)

 

     13.  This act shall take effect on the first day of the seventh month next following enactment, but the New Jersey Housing and Mortgage Finance Agency may take any anticipatory administrative action in advance thereof as shall be necessary for the implementation of this act, and the act shall apply to any mortgage application processed on or after its effective date.

 

 

STATEMENT

 

     This bill establishes, as an addition to the State’s existing efforts to combat mortgage foreclosures through the “Mortgage Stabilization and Relief Act,” P.L.2008, c.127 (C.55:14K-82 et al.), a new Mortgage Education and Foreclosure Avoidance Program. The program targets “at risk” borrowers and “at risk” refinancing borrowers, as measured under the bill by their credit score and other factors relating to the loan amount on a purchase or refinance.

     The program shall be established in the New Jersey Housing and Mortgage Finance Agency.  The agency shall contract with a consulting organization, which shall be a qualifying HUD certified housing counseling agency or other, similar organization recognized by the agency, to assist in the development, administration, and training for the program.  The program, as developed by the consulting organization, shall be proposed and adopted in regulation by the agency.

     In accordance with the bill, the program shall include:  (1) educational presentations and materials regarding mortgages; (2) educational presentations and materials regarding real estate transactions; (3)  an awarding of a standardized certificate of completion to the at risk borrowers and refinancing borrowers, indicating completion of the educational component of the program, the date of issue, and an expiration date; and (4) a monitoring system, which shall continue for two years after the date of the borrowers’ purchase or refinance following their participation in the educational component of the program, and provides for further educational or counseling opportunities, or referrals to other programs on mortgage stabilization and relief offered by the State.

     The program shall be administered by HUD certified counseling agencies that are approved, following application to the agency, to participate in the program, or by the consulting organization contracted to assist in the development, administration, and training for the program.  Any individual employed or otherwise contracted by an approved HUD certified counseling agency to administer the program shall not participate in providing the program to at risk borrowers or refinancing borrowers until that individual successfully completes the educational component of the program.

     At the time of accepting any application for any mortgage for a residential property in this State, a lender or broker, as the case may be, shall provide a written disclosure to the applicant, prepared by the agency through regulation, informing the applicant of the requirements of this act concerning at risk borrowers and refinancing borrowers.  The applicant shall acknowledge receipt of this written disclosure from the lender or broker through a signed statement, and the original or an electronic copy shall be maintained by the lender or broker for a period as determined by the agency by regulation.

     An at risk borrower or refinancing borrower shall not be eligible to close on any mortgage from a lender or through a broker in order to purchase or refinance a residential property unless the borrower possesses a valid, non-expired certificate of completion for the program.  An at risk borrower or refinancing borrower possessing an expired certificate of completion may only be eligible to close on a mortgage by successfully repeating the program.  In order for a lender, or a broker on behalf of a lender, to close on a mortgage loan with an at risk borrower or refinancing borrower, the lender or broker shall first request and maintain a copy of the borrower’s valid, non-expired certificate of completion.

     Any mortgage loan between a lender, or a broker on behalf of a lender, and an at risk borrower or refinancing borrower shall be in violation of the bill and subject the lender or broker to liability set forth by the agency in regulation, including, but not limited to, a civil monetary penalty, if the lender or broker does not request, obtain, and maintain an at risk borrower’s or refinancing borrower’s certificate of completion prior to closing on a mortgage transaction as required by the bill.  However, a lender or broker shall not be liable for a violation under the bill if the lender or broker complies with the notice, collection and record keeping requirements for written disclosures and certificates of completion set forth in the bill.

     In order to fund the program, the bill requires a $25 Mortgage Education and Foreclosure Avoidance Program surcharge applied to each mortgage application processed by a lender or broker, payable to the existing Housing Assistance and Recovery Program Support Fund established by section 10 of P.L.2008, c.127 (C.55:14K-90). In the alternative, the New Jersey Housing and Mortgage Finance Agency may establish in regulation a fee for the program of not more than $150, charged to each participating “at risk” borrower or refinancing borrower, if the agency determines, in consultation with the Department of Banking and Insurance, that the program fee represents a more effective means of funding the program than the surcharge on mortgage applications.