Assemblyman TROY SINGLETON
District 7 (Burlington)
Assemblyman JERRY GREEN
District 22 (Middlesex, Somerset and Union)
Assemblyman WAYNE P. DEANGELO
District 14 (Mercer and Middlesex)
Assemblywoman SHAVONDA E. SUMTER
District 35 (Bergen and Passaic)
Assemblywoman PAMELA R. LAMPITT
District 6 (Burlington and Camden)
Assemblyman Eustace, Assemblywomen Wagner and Riley
Establishes the "Mortgage Assistance Pilot Program."
CURRENT VERSION OF TEXT
An Act establishing a pilot program to help certain homeowners with their mortgages and supplementing Title 55 of the Revised Statutes.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. The Legislature finds and declares that:
a. The severe 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, in which the remaining principal owed on a mortgage is greater than the current value of the home.
b. 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.
c. The high number of homeowners with negative home equity is a major impediment to the recovery of the housing sector, the health of which is integral to that of the broader economy.
d. Many homeowners with negative home equity who are in default would be able to afford to stay in their homes and avoid a foreclosure or short sale if the remaining principal owed on their mortgages was reduced to reflect current market realities.
e. The concern that offering such a principal reduction to these homeowners might encourage similarly situated homeowners, who are current on their mortgages, to default on their mortgages in order to obtain a principal reduction may be addressed by requiring a homeowner to convey an equity share in the property to the mortgage lender in exchange for a principal reduction.
f. It is therefore in the public interest to require the New Jersey Housing and Mortgage Finance Agency to develop and implement a pilot program that provides principal reductions for homeowners, with negative home equity and who are currently in default on mortgages owned by the agency, in exchange for conveying equity shares in the properties to the agency, and to study the financial feasibility and effectiveness in stemming foreclosures and short sales through such arrangements before considering further expansion of the program.
2. As used in this act:
"Agency" means the New Jersey Housing and Mortgage Finance Agency established pursuant to P.L.1983, c.530 (C.55:14K-1 et seq.).
"Commissioner" means the Commissioner of Community Affairs.
"Homeowner" means an individual who holds legal title to a property encumbered by a qualified mortgage.
"Property" means a one- or two- family dwelling that is the primary residence of a homeowner.
“Qualified mortgage” means a mortgage owned by the agency, which has a principal balance greater than the current market value of the mortgaged property and is the sole mortgage on the property.
3. a. The "Mortgage Assistance Pilot Program" is established in the agency to offer a homeowner, who is in default on a qualified mortgage, an agreement under which the remaining principal owed on the mortgage shall be reduced in consideration for which the agency shall receive a proportionate equity share in the property. The pilot program shall operate for a period of three years.
b. An agreement under the pilot program shall provide for:
(1) a reduction in the principal balance of a qualified mortgage of no more than 30% and a reduction in the interest rate of the mortgage to current market rates, if lower than the existing rate;
(2) the conveyance of an equity share certificate that represents an ownership interest in the property equal to the percentage of the principal reduction under the agreement;
(3) the entitlement of the agency, upon the sale of the property to a third party by the homeowner, to the percentage of the sales price equal to the percentage represented on the equity share certificate;
(4) the obligation of a homeowner:
(a) to remain the owner of a property encumbered by a qualified mortgage restructured by an agreement under the pilot program for at least five years after the agreement is signed, and if a homeowner sells such property to a third party less than five years thereafter, an additional five percent of the sales price shall be forfeited to the agency;
(b) to repay, upon making the final payment owing on a qualified mortgage restructured by an agreement under the pilot program, the amount of the principal reduction provided under the agreement, which obligation shall be repaid to the agency over a 10-year period under the interest rate, terms, and conditions of the mortgage in effect at the time the agreement is executed, unless the parties mutually agree to a different repayment arrangement; and
(5) the continued use and occupancy of the property by the homeowner under the same terms and conditions of the qualified mortgage prior to the execution of the agreement except as modified by paragraphs (1), (2), (3), and (4) of this subsection.
c. Each homeowner who is in default of a qualified mortgage shall be invited to apply for an agreement under the pilot program. The application shall be made on a form and accompanied by documentation as prescribed by the executive director of the agency. An application shall be approved if it is demonstrated that the homeowner would otherwise qualify for a loan issued by the agency equivalent to the qualified mortgage as restructured by an agreement under the pilot program.
d. Any funds provided by the federal government and received by the State that may be used for the implementation of the pilot program or any funds appropriated and made available by the State for the pilot program shall be allocated solely for:
(1) application materials and processing costs;
(2) appraisal of property to determine current market value;
(3) closing costs to refinance a qualified mortgage to a new interest rate through the agency, as applicable;
(4) maintenance of mortgage insurance; and
(5) any other activity the agency deems necessary to effectuate the purposes of the pilot program.
4. The Department of the Treasury, in consultation with the agency, shall study whether the agency has minimized its losses and reduced foreclosures and short sales through the pilot program and shall submit a report with its findings and recommendations to the Governor and to the Legislature, pursuant to section 2 of P.L.1991, c.164 (C.52:14-19.1), no later than the first day of the tenth month following the conclusion of the three-year pilot program.
5. The commissioner and the agency are authorized to promulgate rules and regulations in accordance with the “Administrative Procedure Act,” P.L.1968, c.410 (C.52:14B-1 et seq.) to effectuate the provisions of this act.
6. This act shall take effect on the first day of the fourth month next following the date of enactment, but the Commissioner of Community Affairs and the executive director of the New Jersey Housing and Mortgage Finance Agency may take such anticipatory administrative action in advance thereof as shall be necessary for the implementation of this act.
This bill would establish the "Mortgage Assistance Pilot Program" in the New Jersey Housing and Mortgage Finance Agency (“HMFA”). This pilot program would allow a homeowner, with negative home equity and who is in default of a mortgage owned by the agency, to lower the remaining principal owed on the mortgage to an amount more reflective of current market realities in exchange for conveying an equity share in the property to the agency. The pilot program would help these homeowners be able to afford to stay in their homes without encouraging homeowners who are current on their mortgages to default, reducing the foreclosures and short sales that are stifling the recovery of the housing sector.
Under the pilot program, HMFA would be required to invite each homeowner in default of a qualified mortgage to apply for a principal reduction agreement. If approved, the remaining principal owed on the mortgage would be reduced by as much as 30% and the interest rate could be reset at current market rates, if lower than the existing rate. In consideration of this benefit, the homeowner would convey an equity share to HMFA equal to the percentage of the principal reduction that would either be payable to HMFA upon resale of the property or be repaid over a 10-year period commencing after the restructured mortgage is paid off under the same interest rate, terms, and conditions of the mortgage in effect at the time of the agreement, unless the parties mutually agree to a different repayment arrangement. A homeowner who reaches an agreement under the pilot program with HMFA would be required to remain the owner of the property encumbered by the restructured qualified mortgage for at least five years, and if a homeowner sells such property to a third party in less than five years, an additional five percent of the sales price would be forfeited to the agency.
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 to the Legislature no later than the first day of the tenth month following the conclusion of the three-year pilot program.