Assembly Democrats Advance Bill Converting Foreclosures into Affordable Homes
Legislation earmarks accumulated funds, despite concerns Christie’s budget could block intent of proposal
Assembly Democrats advanced a bill to put accumulated affordable housing funds toward the purchase of foreclosed properties, even as they wondered whether Gov. Chris Christie's proposed budget represents a roadblock.
Assemblyman Jerry Green (D-Union), a principal sponsor of legislation along with Sen. Raymond Lesniak (D-Union), said he could work with the administration on the particulars, as long as dedicated housing funds are spent for that purpose. The Democrats are eyeing $228 million in municipal affordable housing trust funds, an estimated $75 million from a national foreclosure settlement and possibly other funds.
They would use the money to allow a state agency to acquire foreclosed homes over a five-year period and make them available as affordable housing. But after a hearing yesterday where his Assembly housing and local government committee easily approved the bill, Green expressed concern that the budget as presented by Christie might funnel the money into general state operations.
"If it's budgeted for housing, that's one thing," Green said. "We want to make sure that it's used for the people who really need it, not to plug a hole" in spending for other purposes.
In a statement, the governor's office identified a variety of current housing programs that the settlement and trust funds could support over the next four years, without mentioning the Democratic proposal.
Christie is "not expressing an opinion at this time on the legislation," said Michael Drewniak, his communications director. "We will be taking a careful look at the bill."
There were few negative words about the bill in the hearing room, as a range of groups actively testified on behalf of the bill or told Green they have no problems with it.
"This bill will stop the downward spiral" of the state's housing industry and overall economy, said Dominick Paragano, president of the New Jersey Builder's Association. The state is staring at an approaching foreclosure wave "that has reached crisis proportions" and could further erode property values, he said.
State officials estimated a backlog of 50,000 to 100,000 new foreclosures could pour into the courts. The numbers mounted during delays caused by moratoriums, a state study, legal proceedings, and national negotiations that resulted in an estimated $26 billion settlement between most states and the five largest mortgage lenders: Ally (formerly GMAC), Bank of America, CitiBank, JP Morgan Chase and Wells Fargo.
Meanwhile, New Jersey municipalities have amassed millions in payments from builders toward the provision of housing for low- and moderate-income residents, said Assemblywoman Mila Jasey (D-Essex/Morris).
"I think the problem is there's been so much confusion about COAH," the state Council on Affordable Housing, "and what a town's obligations are to provide affordable housing," she said.
Established in 1985 to help municipalities deal with their legal requirement to provide housing for low- and moderate-income people, COAH and its rules are currently in separate limbos. Christie tried to eliminate the agency and transfer its powers to the state Department of Community Affairs, but was blocked by an appellate court in a case still being contested.
COAH attempted to replace its complicated "fair share" formula for determining municipal housing obligations, but an appellate court blocked its new rules. While the state Supreme Court stayed that ruling more than a year ago, it has not yet heard arguments in the case.
The Democratic bill would create a temporary state agency, the New Jersey Foreclosure Relief Corporation, to help towns identify properties that could be turned into affordable units. Once acquired, the units would count toward municipal housing obligations, while the agency would go out of business in 2017, according to Green.
Those points won the support of Assemblyman Robert Clifton (R-Monmouth), a former Matawan mayor.
"I'm not usually in support of creating new government agencies, but I think this could be a good tool for helping municipalities out," he said. "When I was mayor, I wished we had someone to help us with these issues."
Michael Cerra, senior legislative analyst for the state League of Municipalities, praised the "innovative proposal," noting the use of housing trust funds for foreclosed properties would be "done with the municipality's consent." But since the other selling point is that the units would count toward municipal housing obligations, "we are concerned" about the budget language, he said.
"These are dollars that we paid by developers for the provision of affordable housing," not other state programs, he said.
In fact, municipalities would receive a 2-1 credit for each of the units sold or conveyed for affordable housing, or leased as an affordable rental unit. The affordability restrictions would apply for 30 years.
The legislature should "make sure these critical housing dollars are not lost to the black hole of the state budget," said Staci Berger, policy and advocacy director of the Housing and Community Development Network of New Jersey.
By leveraging the existing dollars to attract new investment, Berger estimated the proposed agency could raise $900 million. As amended, the bill requires the new agency to enter into an agreement with the New Jersey Housing and Mortgage Finance Agencies to determine the amount of bond proceeds to be raised and the sources of repayment and security.
HMFA's executive director would chair the new agency's seven-member board, and would absorb any of its remaining assets at the end of 2017.
The program could create 9,900 construction and related jobs during its life, and 1,800 future jobs, according to Berger. By keeping and attracting residents to homes that would otherwise become vacant, state and local governments could realize $99 million in sakes, income and property taxes over five years, she said.
Democrats are gearing the time limits in this and related legislation to the national settlement, under which the big banks would pay homeowners and the state in exchange for protection against criminal prosecution for the most commonly brought claim of foreclosure fraud.
Once the settlement wins approval in federal court -- it has not yet been filed -- banks would have three years to pay out the funds. State programs should be structured to help people receiving payments throughout that period and a reasonable period beyond, legislators said.
There was a small bit of pronounced skepticism. Buying already foreclosed or bank-owned homes would "humiliate" the former occupants without helping them, said Rob Eichmann of the New Jersey Republican Conservative Leadership Committee.
Assemblyman Michael Patrick Carroll (R-Morris) left the hearing early without commenting, but was recorded as voting no on the bill.