Thursday, October 30, 2008

Sub-prime Mortgages - Courier - Green's Bill: Safety net or disincentive?

Published in the Courier News, Tuesday, October 14, 2008

Subprime mortgage rescue fund: Safety net or disincentive?


TRENTON —A plan to create an estimated $40 million trust fund to help New Jersey residents who have subprime mortgages avoid losing their homes is instead creating a growing controversy.

Nonprofit housing groups are championing the New Jersey Homeownership Preservation Act as a safety net for homeowners struggling to pay mortgages they can no longer afford, but mortgage lenders are criticizing it as a costly, knee-jerk government reaction that will dissuade lending institutions from doing business in New Jersey.

"Not everybody is going to be able to renegotiate their mortgage and stay in their home. But we want to help as many people as we can," said Staci Berger, advocacy and policy director at the Housing and Community Development Network of New Jersey, which supports the bill.

"The process being suggested is too costly and too onerous, and it could stop businesses from lending in New Jersey," cautioned E. Robert Levy, executive director of the Mortgage Bankers Association of New Jersey.

The bill is one of 19 economy-related measures that moved forward last week during the Assembly's much publicized session on the global financial crisis. The full Assembly could vote on the bill later this month.

It calls for the state to assess a $2,000 fee on any mortgage lender that forecloses on homeowners who have a subprime mortgage. The money collected would go into a trust fund run by the New Jersey Housing and Mortgage Finance Agency, which would distribute it first to nonprofit groups qualified to counsel people facing foreclosure. Remaining money would provide homeowners facing foreclosure with emergency assistance loans and help buy and convert foreclosed homes into affordable housing.

The bill would also require lenders to offer homeowners with subprime mortgages a six-month hold to give them time to renegotiate their loans.

There were more than 134,000 subprime mortgages in New Jersey as of June 30, and 32.5 percent of them were in foreclosure or close to it, according to the Mortgage Bankers Association National Delinquency Survey.

The state's housing and mortgage agency estimates another 10,000 to 20,000 subprime loans will fall into these categories over the next two years if the situation continues unabated. It projects the trust fund would receive between $20 million and $40 million by 2010.

"I don't think the individuals who were trying to secure these loans thought that at some point they were going to lose their jobs to the degree that jobs have been lost, that the values of their homes were going to decrease to the point that they are less than the money that they owe," said Assembly Majority Leader Bonnie Watson Coleman, D-Mercer, before the Assembly Budget Committee last week.

Since March, Watson Coleman and Sen. Ronald Rice, D-Essex, have been leading the effort to get the bill approved in the Legislature and adopted into law. The lawmakers told the budget committee that many homeowners now facing hardship were preyed upon by unscrupulous lenders.

But Assemblyman Declan O'Scanlon Jr., R-Monmouth, who opposes the bill, fears it would give mortgage companies, which are now facing their own problems in the credit market, another disincentive to lend to qualified New Jersey consumers.

The lending institutions could also pass the $2,000 state fee along to their customers, said Assemblywoman Alison Littell McHose, R-Sussex, who criticized the program's estimated $675,000 in startup and staffing costs as too high for financially strapped New Jersey.

"For the amount of money this bill could generate, I think it has a lot of holes in it," McHose said.

SKEPTICS: For more criticisms of the bill from lawmakers, who wonder who'd benefit financially and who'd shoulder the load, visit the Gannett State Bureau's new Capitol Quickies blog at

Lisa G. Ryan:

Online story here. Archived here.

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About Me

Plainfield resident since 1983. Retired as the city's Public Information Officer in 2006; prior to that Community Programs Coordinator for the Plainfield Public Library. Founding member and past president of: Faith, Bricks & Mortar; Residents Supporting Victorian Plainfield; and PCO (the outreach nonprofit of Grace Episcopal Church). Supporter of the Library, Symphony and Historic Society as well as other community groups, and active in Democratic politics.