TRENTON – An Assembly panel on Thursday advanced legislation sponsored by Assembly Democrats that would create a pilot program to help distressed New Jersey homeowners stay in their homes and avoid foreclosure.
“With the second highest foreclosure inventory in the country, we can’t afford to sit back while other states continue to rebound from the housing crisis that crippled our economy,” said Assemblyman Jerry Green (D-Middlesex/Somerset/Union), one of the bill’s sponsors. “This innovative program will help stem the tide of foreclosures and jumpstart our economy.”
The bill (A-3915) would create the “Mortgage Assistance Pilot Program” to be run by the New Jersey Housing and Mortgage Finance Agency (HMFA). The three-year pilot program would allow homeowners who are in default of a mortgage owned by the agency, to lower the remaining principal owed on their mortgage if they have negative home equity.
It would allow someone whose property value has plummeted below what they owe on their mortgage to have their principal lowered to an amount more reflective of current market realities. If approved, the remaining principal owed on the mortgage could be reduced by as much as 30 percent and the interest rate could be reset at current market rates, if lower than the existing rate.
In exchange, the homeowner must convey an equity share in the property to the HMFA equal to the percentage of the principal reduction. This would not have to be paid to the HMFA until the property is eventually resold or over a 10-year period beginning after the restructured mortgage is paid off.
A homeowner who qualifies for the pilot program would be required to remain the owner of the property for at least five years in order to remain qualified for the benefits. However, if a homeowner sells the property in less than five years, an additional five percent of the sales price would be forfeited to the HMFA.
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 the Legislature.
The measure was approved by the Assembly Housing and Local Government Committee and now awaits consideration by the full Assembly.
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