New Jersey's Worsening Foreclosure Crisis
State legislators attempting to deal with New Jersey’s foreclosure crisis heard a tale of two administrations: one a best of, one a worst of, but both governed by Chris Christie.
First, Community Affairs Commissioner Richard Constable wowed the joint session of two Assembly committees by admitting past failures but promoting current success in distributing $300 million in federal foreclosure aid.
Constable’s presentation about his overhaul of the embattled NJ HomeKeeper loan program left Assemblyman Jerry Green (D-Union) starry eyed.
“If I go back into the private sector, I’m going to hire you,” he told Constable, and led a chorus of Democrats and Republicans in a “let’s work together” theme.
But the commissioner did not stay around for testimony from struggling homeowners, foreclosure victims, housing counselors, and activists, whose faint praise for Constable’s department faded against criticism of “incoherent” policies.
The fault-finding came from both left and right, as witnesses said Constable’s efforts, while laudable, have not resolved underlying problems or shaken the “indifference” of the rest of the administration toward the impact of foreclosures on the economy.
By the end of the day, as his housing and local government committee approved a package of three foreclosure-related bills on strict party-line votes, Green’s remarks took on more subdued shadings.
“There’s a lot of miscommunication,” he sighed. “We still have a lot of work to do to get on the same page.”
Now for the Bad News
Only a handful of audience members remained for the worst news of the day, a withering assessment from the state Administrative Office of the Courts about pending foreclosure actions.
“We could easily have 65,000 to 100,000 [foreclosure] cases next year,” said Dan Phillips, the AOC’s legislative liaison.
The lower number would roughly equal the figure for 2010, which court officials believe was the most ever in New Jersey. The latter would meet the highest estimate of all cases held up during legal moratoria in 2011, some of which already have been filed, dropped, or resolved.
Some private attorneys in foreclosure practice have even higher estimates, according to Kevin Wolfe, the AOC’s assistant director for the civil division. One just told him to expect 150,000 or more, he said.
Even before hearing those estimates, as Green’s group sat earlier with the financial institutions committee, members and witnesses agreed that New Jersey’s numbers look bad. It continues to rank near the top of the states in unemployment and foreclosure rates.
That malign combination qualified New Jersey for the $300 million in “hardest hit” aid from the U.S. Treasury Department’s Troubled Asset Relief Program, colloquially known as the “bailout.”
Treasury gave the states their choices in how to use the money. New Jersey developed HomeKeeper through the state Mortgage and Housing Finance Agency, to provide loans of up to $48,000 to help unemployed or under-employed people stay in their homes.
Getting Past 'No'
Although the Governor announced the program in December 2010, it did not start accepting clients until July 2011. Of 1,300 initial applicants, most endured long waits, requests for more information and ultimate rejection. In 2011, the program accepted a handful of applicant and disbursed a fistful of dollars.
The situation prompted letters of complaint from U.S. Sens. Frank Lautenberg and Robert Menendez (both D-NJ), and Menendez continued his public criticism at a January hearing in Plainfield on federal foreclosure legislation.
In response, Constable said the DCA made two attempts to relax the program’s highly restrictive standards before he was appointed commissioner in January of this year, replacing Lori Grifa. Both failed, he said.
During 2011, HomeKeeper approved only 56 loans. After the initial changes, the numbers crept up to 114 in the first quarter of this year. In the second quarter, the number rose further, to 330, Constable said.
But the program still rejected 1,502. Another 56 withdrew, while 1,856 were listed as “in process,” according to a performance report by the Treasury Department.
Constable argued that a lack of federal guidance and paperwork problems among the 23 agencies certified to assist applicants contributed to delays and rejections. But he admitted the results were “indefensible.”
“I did not make rash changes,” Constable said, but instead performed “an autopsy.” He found a short-staffed program with “onerous” standards that “excluded too many folks,” a “lack of urgency” in processing applications and poor communications.
“The solution was to hire more staff, change the guidelines to make them less restrictive, change the management,” Constable said.
Assemblyman Gary Schaer (D-Passaic), chairman of the financial institutions committee, praised Constable’s candor about the problems and the solutions.
But he and other Democrats showed no signs of believing Constable’s statement that until he briefed Christie, the governor was unaware of the program's struggles.
“Clearly, the ball was dropped,” Schaer said.
Still, Constable left amid accolades. Even some housing advocates, like Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action, said HomeKeeper’s performance has gotten better.
While Constable said it is approaching his target of 250 loan approvals at roughly $10 million a month, Salowe-Kaye and others said the commissioner underestimated the demand for the program and the effects of delays and rejections.
Many applicants initially met financial criteria, but as their applications have dragged on for as long as a year, they have fallen behind on their mortgages, she said. Although aware of the pending applications, many major lenders have refused to wait or relax terms, she said.
“So because their debt kept piling up, by the time their applications are processed they are no longer eligible and get kicked out of the program,” Salowe-Kaye said.
While Constable told the committee that applicants rejected under the older, stricter income and debt limits can re-apply, Salowe-Kaye said that does reflect reality.
“Sure, they can re-apply, if they first find some money to pay down the debt that built up while they were waiting,” she said.
The Human Angle
When Celeste Wright was laid off from her job with the City of Newark because of budget cuts, “I was delighted to know that there was help out there for people like me.”
Wright did not have an expensive subprime mortgage, and had previously made her payments. But after a lengthy wait for a decision from HomeKeeper, she was rejected and now stands to lose her home.
“I found out that there is no hope,” she said.
Construction worker Curt Hamilton of Port Reading said he bought his house in 2000. When it became hard to keep steady work during the recession, his lender, the former Independent National Mortgage Corp., “Indy Mac,” agreed to modify his mortgage, he said. Notorious for its lending practices, IndyMac went bankrupt and was eventually acquired by OneWest Bank.
“IndyMac modified it to a higher rate,” Hamilton said. “If I couldn’t afford the lower rate, how could they expect me to pay more?”
While the hearing was going on, the governor's office put out a statement saying, "let's make sure we keep the facts straight." Constable's improvements to HomeKeeper mean the program "is more quickly and effectively getting assistance to those in need and . . . has committed nearly $59 million to families across New Jersey with an average loan of $40,000," the release said.
On a day when the U.S. sued Bank of America, the nation’s second-largest bank, and its Countrywide Financial unit, alleging $1 billion or more in mortgage fraud, some witnesses said the State of New Jersey has been indifferent to financial crimes and misrepresentations.
While it is nice that Constable has improved the efficiency of HomeKeeper, neither that program nor pending legislation increase state oversight of lenders involved in such programs, said Laura Walsh of the New Jersey Tea Party Coalition.
“These are the people who stole our pensions, and now they’re stealing our homes,” she said.
The Governor used $75 million from a national fraud settlement with five big banks to plug holes in the state budget, not for foreclosure assistance, Berger said.
While many other states have pulled the same maneuver, at least some of them have established oversight offices to report on how the banks are repaying victimized homeowners, she said.
Asked how the settlement’s $726 million in direct aid for homeowners is being distributed, the New Jersey Attorney General’s Office “gave us five 800 numbers for the banks and said, “You’re free to call them and ask,’” said Staci Berger of the Housing and Community Development Network of New York.
Legislators and witnesses agreed there are other tactics the state could use, especially since $188 million of the HomeKeeper money can be spent for steps such as paying down principal.
Assemblyman Christopher J. Brown (R-Burlington) called for more publicity and referrals to the court system’s foreclosure mediation program, which provides legal assistance.
But whento codify that program and pay for it from foreclosure filing fees came up later in the housing and local government committee, no Republicans there supported it. It was the same for , which would overhaul HomeKeeper to a lesser extent than Constable outlined.
Democrats also are trying again with, the Residential Foreclosure Transformation Act vetoed once by Christie. It would allow the HMFA to provide financing for non-profit or for-profit groups to buy foreclosed homes, and municipalities to designate some as affordable housing.