Bills to Stave Off Foreclosures Limp Through Legislature

Joe Tyrrell | October 3, 2012 | More Issues
Gov. Christie has already vetoed similar state-funded loan initiatives

With New Jersey facing a new wave of foreclosures, Democratic legislators are pushing the Christie administration to do more to keep people in their homes, such as using almost $300 million in available federal aid.

But after preliminary sparring before the state Senate Budget and Appropriations Committee, legislation addressing the issue, sponsored by state Sen. Raymond Lesniak (D-Union), limped forward with a push from bankers, builders, realtors and municipalities, but without much bipartisan backing.

The committee cleared two Lesniak measures, including one already vetoed in an earlier incarnation by Gov. Chris Christie.

That reconstituted bill, S2157, would require the New Jersey Housing and Mortgage Finance Agency to facilitate bulk purchases of foreclosed properties with the aim of keeping families in their homes or neighborhoods.

Nonprofit and for-profit groups would be eligible for financing to buy already vacant properties, or those going through foreclosure. With municipal approval, the homes could be designated to meet requirements for affordable housing.

The other bill, S2202, would require NJHMFA to proceed with something it has been loath to do: spend the almost $300 million remaining in a federal loan fund intended to help struggling homeowners meet their mortgage obligations.

That already has seen more than a year of back-and-forth between the HFMA and New Jersey’s two senators, Frank Lautenberg and Robert Menendez (both D-NJ).

The senators have complained that New Jersey continues to trail the rest of the nation in getting the federal aid to eligible homeowners. The state eventually could lose any unspent aid, though not until 2017.

While HFMA has cited foreclosure cases in state courts, the senators argue the money is supposed to forestall such actions.

In the meantime, the state’s economic situation is not getting any better, Lesniak said at the Statehouse on Monday, as the committee approved that second bill in a 9-4 vote.

He pointed to a finding by Moody’s Investors Service that the high foreclosure rate is a “credit negative” for the state that could result in lower local bond ratings. That makes foreclosures bad news for communities and the state, not just affected families, he said.

“Being near the top in foreclosures and unemployment is not a record to be proud of,” he said.

Lesniak was referring to real-estate market reports that in recent months have generally shown New Jersey ranking second behind Florida in delinquencies on mortgage loans, as well as to the state’s 9.9 percent unemployment rate, the highest in three decades.

For much of 2011, foreclosures slowed to a trickle as the New Jersey Supreme Court imposed a moratorium until the largest mortgage banks and 20 other significant lenders took steps to eliminate errors or fraud in their foreclosure cases.

Studies here and elsewhere in the nation showed that, in many cases, lenders bringing foreclosures lacked sufficient documentation to show that they actually held the mortgages, or had failed to give proper notice to borrowers.

The problems are a byproduct of the turn-of-the-century rush to “securitize” mortgages, combining, repacking and chopping them up as investment vehicles. Because lenders also approved many poorly secured mortgages, or funneled borrowers into higher than necessary loan rates, many of these mortgage-backed securities were highly risky.

The collapse of that housing bubble produced the Great Recession, and the poor economy made it even harder for struggling borrowers to make payments. But even some whose mortgages are now “underwater,” with current values lower than their mortgages, have continued to make payments.

Meanwhile, the Supreme Court action caused foreclosures in New Jersey to plummet from a high of 66,717 in 2009 to 11,037 last year.

With just under three months left in 2012, this year’s new foreclosures already have doubled last year’s figure, according to state court records. The first nine months of this year surpassed the total for all of 2005, before the onset of the recession.

But there is still a large backlog of cases that were pending before the court moratorium; state officials put the total between 50,000 and 100,000. While some major lenders have said they are willing to consider modifications and short sales, permitting borrowers to sell for less than the outstanding mortgage, others have been moving steadily toward major foreclosure actions.

The Supreme Court ruled in February that banks must give borrowers foreclosure notices that properly identify the lender that actually holds their mortgage. Since then, Wells Fargo has filed court paperwork for 4,600 corrected notices on behalf of lenders whose accounts it services in New Jersey. Other banks have smaller cases pending.

According to Lesniak, his legislation would help at least some New Jerseyans before the surge in foreclosures takes their homes.

But Christie rejected the earlier version of Lesniak’s Residential Foreclosure Transformation Act, saying it “would ladle on even more government spending” by increasing HMFA’s borrowing.

The new version of the bill adds language specifying

Even with a laundry list of supporters from all corners of the political spectrum and the changes in response to the governor’s veto, though, that measure snuck through the committee on a 7-6 vote.

Although the prospect of using foreclosed properties to meet affordable housing needs won the backing of the state League of Municipalities, it remains a bugaboo for some Republicans. The Christie administration continues to contest court rulings that have kept the state Council on Affordable Housing alive, at least on paper, and hopes to eventually eliminate the program.

State Sen. Jennifer Beck (R-Monmouth) said she views court reviews of foreclosures as “a good thing and a bad thing” for the state. Even before last year’s moratorium, foreclosures generally take longer in states like New Jersey which require judges to approve them.

Giving residents facing foreclosure “second chances and third chances and trying to get them back on track” often does not work when the economy remains poor, Beck said. She praised recession-devastated Florida as a state that allows faster foreclosures.

That gave Lesniak the opening to tout another bill up for a possible floor vote on Thursday. His S2156 would allow expedited foreclosure proceedings on abandoned properties that are falling into disrepair.