A927

ASSEMBLY, No. 927

STATE OF NEW JERSEY

Introduced Pending Technical Review by Legislative Counsel

PRE-FILED FOR INTRODUCTION IN THE 1996 SESSION

By Assemblyman ROCCO

An Act concerning certain mortgage loans under the Teachers' Pension and Annuity Fund, the Public Employees' Retirement System and the Police and Firemen's Retirement System, amending P.L.1992, c.78 and supplementing chapter 66 of Title 18A of the New Jersey Statutes and P.L.1954, c.84 (C.43:15A-1 et seq.).

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

1. (New section) As used in this act:

"mortgage loan" means any indebtedness secured by a mortgage on a residential property, which mortgage shall constitute a first lien on the property; and

"residential property" means any real property including land or, in the case of condominiums, an interest in a lot of land, which real property shall consist of a single one or two family dwelling, including appropriate garages or other outbuildings, or unimproved real property if the proceeds of the mortgage loan shall be used exclusively for the purposes of erecting such a single one or two family dwelling thereon.

2. (New section) The Director of the Division of Investment shall at all times have authority to invest and reinvest the monies in, and to acquire for or on behalf of, the Teachers' Pension and Annuity Fund mortgage loans on residential property.

3. (New section) a. In addition to any loan for which he may be eligible pursuant to the provisions of N.J.S.18A:66-35 and notwithstanding the provisions of that or any other law to the contrary, any retiree under the Teachers' Pension and Annuity Fund and any member of the Teachers' Pension and Annuity Fund who, at the time of application, is employed by a school board, educational services commission, jointure commission, county college or the State and who has at least one year of creditable service is, for the purpose of securing for his own occupation as his principal residence a residential property located within this State, eligible to receive a mortgage loan pursuant to the provisions of this act. The mortgage loan shall be used only for the purpose of enabling a borrower to acquire or construct a residential property or refinance an existing residential property loan.

No retiree or member shall be eligible hereunder for more than one outstanding mortgage loan at any time, and no retiree or member shall be eligible to receive a second mortgage loan on a residential property already mortgaged by him. Preference shall be given in making loans to retirees or members who are applying to acquire or construct their first principal place of residence.

b. Any mortgage loan made pursuant to the provisions of this act, together with any interest and expenses to the retirement system associated with the making of that loan, shall be repaid in equal installments.

c. The amount of interest charged with respect to a mortgage loan made pursuant to the provisions of this act shall be fixed for the entire term of the loan. The New Jersey Housing and Mortgage Finance Agency, established under section 4 of P.L.1983, c.530 (C.55:14K-4), shall initially establish the rate within 120 days of the effective date of this act and semiannually reset the rate thereafter. The rate shall be determined by the New Jersey Housing and Mortgage Finance Agency by adding from 1% to 2% to the index. For the purposes of this subsection, the index shall be the weekly average yield at the time the rate is reset on one-year United States Treasury securities adjusted to a constant maturity as made available by the Federal Reserve Board. The term of any mortgage loan so made shall not exceed 30 years.

d. No mortgage loan made pursuant to the provisions of this act shall be sold, transferred or assigned to any person, nor shall the payments with respect to any mortgage loan so made be assumed by any person other than the retiree or member to whom that loan was made, except that in the event of the death of a retiree or member, the mortgage may be assignable to a surviving spouse if the spouse is the sole heir to the property.

e. The instrument evidencing a mortgage loan under the provisions of this act may be in such form, and may contain such provisions, not inconsistent with law, as the director may choose to insert for the protection of the retirement system's lien and the preservation of its interest in the real property mortgaged to it.

4. (New section) a. The State Treasurer shall delegate the administration of this mortgage loan program to the New Jersey Housing and Mortgage Finance Agency established under section 4 of P.L.1983, c.530 (C.55:14K-4). The agency shall: (1) originate loans; (2) appraise the value of any real property eligible to be mortgaged under this act; (3) guarantee and insure title to the real property; and (4) perform any other service necessary to accomplish the purposes of this act in a manner consistent with the protection of the rights of beneficiaries of the retirement system. The cost of the performance of these services in connection with the making of a mortgage loan shall be charged to the borrower and included in the amount of that mortgage loan.

b. The New Jersey Housing and Mortgage Finance Agency shall award a one-year contract for the servicing of loans to the eligible lender which has originated the most mortgage loans since the inception of the mortgage loan program established under the Police and Firemen's Retirement System pursuant to P.L.1992, c.78 (C.43:16A-16.9 et seq.). Thereafter, any contract for the servicing of loans shall be awarded on an annual basis to the eligible lender which has originated the most loans under the Teachers' Pension and Annuity Fund during the prior year.

5. (New section) The State Treasurer, with the advice of the State Investment Council, the Board of Trustees of the Teachers' Pension and Annuity Fund, and the New Jersey Housing and Mortgage Finance Agency, shall set mortgage loan standards and guidelines for loans made pursuant to this act, including mortgage loan maturity terms, participation fees, mortgage loan insurance requirements, lender compensation rates, servicing fees, loan-to-value ratios, minimum and maximum mortgage loan amounts and eligibility standards consistent with section 3 of this act.

6. (New section) Any retiree or member receiving a mortgage loan pursuant to the provisions of this act shall, within 120 days of the date on which the loan was made, occupy the residence as his principal dwelling place. If any retiree or member receiving a mortgage loan pursuant to the provisions of this act sells, or ceases to occupy as his residence and principal dwelling place, that residential property, the entire amount of that mortgage loan, together with any accrued interest thereon, shall be due and payable on the 120th day following that action.

7. (New section) a. Upon application of a retiree or member for a mortgage loan the director shall, within 90 days, make available to the New Jersey Housing and Mortgage Finance Agency sufficient funds to provide mortgage loans in accordance with the provisions of this act, except that no mortgage loan shall be made at any time when the total of all principal balances owing on mortgage loans made pursuant to this act, less all write-offs and reserves with respect to these mortgage loans, together exceeds, or by the making of the loan would exceed, 10% of the total investment assets, including mortgage loans, of the retirement system. Every mortgage loan made hereunder shall be evidenced by a note or bond and shall be secured by a mortgage on the fee of real property located within this State. Every mortgage shall be certified to be a first lien by an attorney-at-law of this State or certified or guaranteed to be a first lien by a corporation authorized to guarantee titles to land in this State. For the purposes of this section, a mortgage shall be deemed to be a first lien, notwithstanding the existence of a lien for current taxes or assessments not due or payable at the time the loan is made, and notwithstanding the existence of leases, building restrictions, easements, encroachments, or covenants which do not materially lessen the value of the real property to be mortgaged.

b. Pursuant to rules established by the State Treasurer, with the advice of the New Jersey Housing and Mortgage Finance Agency, no mortgage loan shall be made under this act except upon a written certification signed by at least two persons appointed or retained by the appraisers. In the case of a mortgage loan secured by a mortgage upon real property, such certification shall state the opinion of such persons as to the value of the land and the improvements thereon or to be erected thereon and the character of such improvements. Such certification shall be filed with the records of the retirement system and shall be preserved until the retirement system has no interest, as mortgagee or otherwise, in the real property.

c. No mortgage loan secured by a mortgage on real property shall be made unless the property shall consist of improved real property, or unimproved real property if the proceeds of such loan shall be used for the purposes of erecting improvements thereon.

8. (New section) The State Treasurer shall, with the advice of the State Investment Council, the Director of the Division of Pensions and Benefits and the Executive Director of the New Jersey Housing and Mortgage Finance Agency and in accordance with the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.), promulgate any rules and regulations necessary to accomplish the purposes of this act.

9. (New section) As used in this act:

"mortgage loan" means any indebtedness secured by a mortgage on a residential property, which mortgage shall constitute a first lien on the property; and

10. (New section) The Director of the Division of Investment shall at all times have authority to invest and reinvest the monies in, and to acquire for or on behalf of, the Public Employees' Retirement System mortgage loans on residential property.

11. (New section) a. In addition to any loan for which he may be eligible pursuant to the provisions of section 34 of P.L.1954, c.84 (C.43:15A-34) and notwithstanding the provisions of that or any other law to the contrary, any retiree under the Public Employees' Retirement System and any member of the Public Employees' Retirement System who, at the time of application, is employed by the State or a county, municipality or other political subdivision of the State and who has at least one year of creditable service is, for the purpose of securing for his own occupation as his principal residence a residential property located within this State, eligible to receive a mortgage loan pursuant to the provisions of this act. The mortgage loan shall be used only for the purpose of enabling a borrower to acquire or construct a residential property or refinance an existing residential property loan.

12. (New section) a. The State Treasurer shall delegate the administration of this mortgage loan program to the New Jersey Housing and Mortgage Finance Agency established under section 4 of P.L.1983, c.530 (C.55:14K-4). The agency shall: (1) originate loans; (2) appraise the value of any real property eligible to be mortgaged under this act; (3) guarantee and insure title to the real property; and (4) perform any other service necessary to accomplish the purposes of this act in a manner consistent with the protection of the rights of beneficiaries of the retirement system. The cost of the performance of these services in connection with the making of a mortgage loan shall be charged to the borrower and included in the amount of that mortgage loan.

b. The New Jersey Housing and Mortgage Finance Agency shall award a one-year contract for the servicing of loans to the eligible lender which has originated the most mortgage loans since the inception of the mortgage loan program established under the Police and Firemen's Retirement System pursuant to P.L.1992, c.78 (C.43:16A-16.9 et seq.). Thereafter, any contract for the servicing of loans shall be awarded on an annual basis to the eligible lender which has originated the most loans under the Public Employees' Retirement System during the prior year.

13. (New section) The State Treasurer, with the advice of the State Investment Council, the Board of Trustees of the Public Employees' Retirement System, and the New Jersey Housing and Mortgage Finance Agency, shall set mortgage loan standards and guidelines for loans made pursuant to this act, including mortgage loan maturity terms, participation fees, mortgage loan insurance requirements, lender compensation rates, servicing fees, loan-to-value ratios, minimum and maximum mortgage loan amounts and eligibility standards consistent with section 11 of this act.

14. (New section) Any retiree or member receiving a mortgage loan pursuant to the provisions of this act shall, within 120 days of the date on which the loan was made, occupy the residence as his principal dwelling place. If any retiree or member receiving a mortgage loan pursuant to the provisions of this act sells, or ceases to occupy as his residence and principal dwelling place, that residential property, the entire amount of that mortgage loan, together with any accrued interest thereon, shall be due and payable on the 120th day following that action.

15. (New section) a. Upon application of a retiree or member for a mortgage loan the director shall, within 90 days, make available to the New Jersey Housing and Mortgage Finance Agency sufficient funds to provide mortgage loans in accordance with the provisions of this act, except that no mortgage loan shall be made at any time when the total of all principal balances owing on mortgage loans made pursuant to this act, less all write-offs and reserves with respect to these mortgage loans, together exceeds, or by the making of the loan would exceed, 10% of the total investment assets, including mortgage loans, of the retirement system. Every mortgage loan made hereunder shall be evidenced by a note or bond and shall be secured by a mortgage on the fee of real property located within this State. Every mortgage shall be certified to be a first lien by an attorney-at-law of this State or certified or guaranteed to be a first lien by a corporation authorized to guarantee titles to land in this State. For the purposes of this section, a mortgage shall be deemed to be a first lien, notwithstanding the existence of a lien for current taxes or assessments not due or payable at the time the loan is made, and notwithstanding the existence of leases, building restrictions, easements, encroachments, or covenants which do not materially lessen the value of the real property to be mortgaged.

16. (New section) The State Treasurer shall, with the advice of the State Investment Council, the Director of the Division of Pensions and Benefits and the Executive Director of the New Jersey Housing and Mortgage Finance Agency and in accordance with the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.), promulgate any rules and regulations necessary to accomplish the purposes of this act.

17. Section 4 of P.L.1992, c.78 (C.43:16A-16.11) is amended to read as follows:

4. a. In addition to any loan for which he may be eligible pursuant to the provisions of section 18 of P.L.1964, c.241 (C.43:16A-16.1) and notwithstanding the provisions of that or any other law to the contrary, any retiree under the Police and Firemen's Retirement System and any member of the Police and Firemen's Retirement System who, at the time of application, is employed by the State or a county, municipality or other political subdivision of the State and who has at least one year of creditable service is, for the purpose of securing for his own occupation as his principal residence a residential property located within this State, eligible to receive a mortgage loan pursuant to the provisions of this act. The mortgage loan shall be used only for the purpose of enabling a borrower to acquire or construct a residential property or refinance an existing residential property loan.

(cf: P.L.1992, c.78, s.4)

18. Section 5 of P.L.1992, c.78 (C.43:16A-16.12) is amended to read as follows:

5. a. The State Treasurer shall delegate the administration of this mortgage loan program to the New Jersey Housing and Mortgage Finance Agency established under section 4 of P.L.1983, c.530 (C.55:14K-4). The agency shall: [a.](1) originate loans; [b.](2) appraise the value of any real property eligible to be mortgaged under this act; [c.](3) guarantee and insure title to the real property; and [d.](4) perform any other service necessary to accomplish the purposes of this act in a manner consistent with the protection of the rights of beneficiaries of the retirement system. The cost of the performance of these services in connection with the making of a mortgage loan shall be charged to the borrower and included in the amount of that mortgage loan.

b. Upon the completion of any contract in existence on the effective date of this act, P.L. , c. (C. ) (now pending before the Legislature as this bill), for the servicing of loans, the New Jersey Housing and Mortgage Finance Agency shall award a one-year contract for the servicing of loans to the eligible lender which has originated the most program loans since the inception of the mortgage loan program established under the Police and Firemen's Retirement System. Thereafter, any contract for the servicing of loans shall be awarded on an annual basis to the eligible lender which has originated the most loans during the prior year.

(cf: P.L.1992, c.78, s.5)

19. Section 7 of P.L.1992, c.78 (C.43:16A-16.14) is amended to read as follows:

7. Any retiree or member receiving a mortgage loan pursuant to the provisions of this act shall, within 120 days of the date on which the loan was made, occupy the residence as his principal dwelling place. If any retiree or member receiving a mortgage loan pursuant to the provisions of this act sells, or ceases to occupy as his residence and principal dwelling place, that residential property, the entire amount of that mortgage loan, together with any accrued interest thereon, shall be due and payable on the 120th day following that action.

(cf: P.L.1992, c.78, s.7)

20. Section 8 of P.L.1992, c.78 (C.43:16A-16.15) is amended to read as follows:

8. a. Upon application of a retiree or member for a mortgage loan the director shall, within 90 days, make available to the New Jersey Housing and Mortgage Finance Agency sufficient funds to provide mortgage loans in accordance with the provisions of this act, except that no mortgage loan shall be made at any time when the total of all principal balances owing on mortgage loans made pursuant to this act, less all write-offs and reserves with respect to these mortgage loans, together exceeds, or by the making of the loan would exceed, 10% of the total investment assets, including mortgage loans, of the retirement system. Every mortgage loan made hereunder shall be evidenced by a note or bond and shall be secured by a mortgage on the fee of real property located within this State. Every mortgage shall be certified to be a first lien by an attorney-at-law of this State or certified or guaranteed to be a first lien by a corporation authorized to guarantee titles to land in this State. For the purposes of this section, a mortgage shall be deemed to be a first lien, notwithstanding the existence of a lien for current taxes or assessments not due or payable at the time the loan is made, and notwithstanding the existence of leases, building restrictions, easements, encroachments, or covenants which do not materially lessen the value of the real property to be mortgaged.

(cf: P.L.1992, c.78, s.8)

21. This act shall take effect immediately and sections 1 through 16 shall expire five years after the effective date, provided that any

mortgage in effect on the expiration date shall remain in effect until the retirement of the mortgage.

STATEMENT

This bill establishes a program whereby a retiree under the Teachers' Pension and Annuity Fund (TPAF) or the Public Employees' Retirement System (PERS) or an active TPAF or PERS member with at least one year of creditable service may obtain a mortgage loan from the retirement system. The loan may only be used to acquire or construct a residential property or to refinance an existing residential property loan. It may not be given as a second mortgage on already mortgaged property. No retiree or member is allowed to have more than one outstanding loan under the program at any time.

Preference shall be given in making loans to retirees or members who are applying to acquire or construct their first principal place of residence. No loan under the program may be sold, transferred or assigned, nor may payments with respect to such a loan be assumed by anyone other than the retiree or member. An exception may be made, in the event the retiree or member dies, for the assignment of the mortgage to the decedent's surviving spouse if that spouse is the sole heir to the encumbered property.

A retiree or member who receives a mortgage loan under the program must, within 120 days of the making of the loan, occupy the residence as his principal dwelling place. If a retiree or member receiving a mortgage loan sells or ceases to occupy as his residence and principal dwelling place that residential property, the entire amount of that mortgage loan, together with any accrued interest thereon, shall be due and payable within 120 days.

The interest rate applicable to loans under the program shall be set semiannually by the New Jersey Housing and Mortgage Finance Agency and shall be from 1% to 2% above the average yield on one-year Treasury bills at the time of the setting. The term of any loan under the program shall not exceed 30 years.

The State Treasurer shall delegate the administration of this mortgage loan program to the New Jersey Housing and Mortgage Finance Agency. The agency shall: (1) originate loans; (2) appraise the value of any real property eligible to be mortgaged under this act; (3) guarantee and insure title to the real property; and (4) perform any other service necessary to accomplish the purposes of this act in a manner consistent with the protection of the rights of beneficiaries of the retirement system. The cost of the performance of these services in connection with the making of a mortgage loan shall be charged to the borrower and included in the amount of that mortgage loan. The New Jersey Housing and Mortgage Finance Agency shall award a one-year contract for the servicing of TPAF and PERS loans to the eligible lender which has originated the most program loans since the inception of the mortgage loan program under the Police and Firemen's Retirement System. Thereafter, any contract for the servicing of loans shall be awarded on an annual basis to the eligible lender which has originated the most loans under the retirement system, as the case may be, during the prior year.

The State Treasurer, with the advice of the State Investment Council, the Board of Trustees of the Teachers' Pension and Annuity Fund, and the New Jersey Housing and Mortgage Finance Agency, shall set mortgage loan standards and guidelines for loans made pursuant to this act, including mortgage loan maturity terms, participation fees, mortgage loan insurance requirements, lender compensation rates, servicing fees, loan-to-value ratios, minimum and maximum mortgage loan amounts and eligibility standards.

No mortgage loan shall be made at any time when the total of all principal balances owing on mortgage loans made pursuant to this act, less all write-offs and reserves with respect to these mortgage loans, together exceeds, or by the making of the loan would exceed, 10% of the total investment assets, including mortgage loans, of the retirement system.

This bill also revises the existing Police and Firemen's Retirement System (PFRS) mortgage loan program. The bill:

(1) allows retirees to participate in the program;

(2) provides that the interest rate shall be determined by adding from 1% to 2%, rather than a flat 2%, to the one-year United States Treasury securities index; and

(3) stipulates that upon the completion of any contract in existence on the effective date of this act for the servicing of loans, the New Jersey Housing and Mortgage Finance Agency shall award a one-year contract for the servicing of loans to the eligible lender which has originated the most program loans since the inception of the mortgage loan program under PFRS. Thereafter, any contract for the servicing of loans shall be awarded on an annual basis to the eligible lender which has originated the most loans during the prior year.

Allows TPAF and PERS to make mortgage loans to certain members and retirees and makes revisions to the PFRS mortgage loan program.