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Help for New Jersey's Mortgage Crisis?

Proposed federal legislation would ease the squeeze on NJ homeowners struggling with underwater mortgages.

A bill to streamline mortgage refinancing for borrowers from the two largest federal lenders has won industry support by dropping penalties on banks and insurers, according to the sponsors, Sens. Robert Menendez (D-NJ) and Barbara Boxer (D-CA).

New Jersey mortgage-holders would be among the major beneficiaries, saving an average of $4,143 a year, the third highest in the country after the District of Columbia and Massachusetts, according to A May study by Columbia University's Paul Milstein Center for Real Estate.

The study found that New Jersey ranks sixth in the number of affected borrowers with 402,341. California is first, with more than 10 percent of the total.

In a conference call with reporters yesterday, the two senators said they are optimistic that the bill, which eases restrictions on homeowners in the Obama Administration's Home Affordable Refinance Program, can squeeze through Congress before the imminent pre-election recess.

Normally that timing would be unlikely in the midst of a presidential campaign, with Menendez also seeking re-election against state Sen. Joseph Kyrillos (R-Monmouth).

Broad-Based Support

Even as they acknowledged the hurdles, the two sponsors said the revised bill has won the support of a broad spectrum of groups, including the Mortgage Bankers Association, National Association of Realtors, National Association of Home Builders, Center for Responsible Lending and the National Conference of Mayors.

"We have addressed every single concern that was raised by Republicans and industry" about the earlier version of the bill, Menendez said. "We have been working to create a coalition that is broad, expansive and supportive."

There are also the political numbers. At a time when more than one-fifth of mortgages remain "underwater," with borrowers owing more than the value of their properties, Menendez said as many as 13.5 million could qualify. Their savings, according to the study, could total as much as $35 billion a year.

Although HARP approvals have sped up this year, the sponsors said the bill would make it easier for eligible participants to get better terms on loans made or secured by the Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Association (Freddie Mac).

Combined, the two agencies owned or guarantee more than half of mortgages, with estimated values exceeding $10 trillion.

Better Shop Around

The bill would make it easier for borrowers to "shop around" for better interest rates than those offered by Fannie and Freddie, Boxer said. She cited a study by Amherst Securities of Austin, TX, that mortgages "parked" with a single lender pay an average of a half-percent more in annual interest.

"That may not sound like a lot, but they found that on average it's $34,500 more over the life of the loan," Boxer said.

The bill would eliminate upfront fees and appraisal costs on refinancing through HARP. It would extend eligibility to homeowners who have larger shares of equity, more than 20 percent, in their properties.

It would also drop requirements for proof of employment or income from the application. The two senators said that documentation is unnecessary, because the program is limited to "responsible" borrowers who have been making payments on time regardless of personal situations.

Easing the modification process also would be good business for taxpayers, according to Menendez. He cited an analysis by the Congressional Budget Office that the bill "pays for itself" by lowering the default rate on Fannie and Freddie mortgage loans.

Still, the sponsors acknowledged that had to eliminate several provisions from the version of the bill introduced in January. That would have imposed fines on holders of second liens or mortgage insurers who refused to go along with transfers.

Menendez suggested those two concessions were not crucial, "because most of the major banks have already to do that voluntarily, as have the mortgage insurers." But he acknowledged the bill also dropped an effort to extend by a year the date by which a loan must have been issued to be eligible.

But Menendez denied speculation that the bill includes a "safe harbor" protecting lenders against challenges to whether loans were correctly structured to borrowers ability to repay.

The Toughest Battle

Menendez said he has gotten a strong response from constituents about the idea of easing borrowing procedures, both at committee hearings such as a January event in Plainfield and in postings on his website. He noted that more than 500 people have commented on the legislation, including a woman identified only as Linda from Toms River.

"I am a cancer survivor for nine years and thought that was the toughest fight of my life, until this," she said. "Trying to refinance my mortgage is harder than fighting cancer."

While Menendez said he is prepared to defer a recess "for as long as it takes to get this done," the two Democrats were clearly prepared to use any delay or rejection as an issue. He has talked to Senate Banking Committee Chairman Tim Johnson (D-SD) about a possible hearing, but that may not happen if Republicans propose "extraneous" amendments, Menendez said.

"If you want to talk about the future of Fannie and Freddie, well, that's for another day," he said.

In case of committee wrangling, Senate Majority Leader Harry Reid is "very supportive" of bringing the bill directly to the floor for a vote, Boxer said.

That still leaves the Republican-controlled House, but Boxer was ready with a sly dig.

"Knowing our Republican friends, as I do, they say that they support a competitive marketplace, so they should be very, very happy with this," she said.

The House is "waiting to see what we do with this," Menendez said, but added, "I'm sure there will be a companion bill there."

During three decades reporting in New Jersey, Joe Tyrrell has covered everything from Avon to Zarephath, with a particular emphasis on politics and government, the environment and agriculture. He founded the New Jersey Foundation for Open Government, which unites civic groups, citizens and journalists to promote transparency and ethics.

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