It looks like the foreclosure crisis in New Jersey is about to get a lot worse, unless the state -- especially the Attorney General -- takes decisive steps to prevent that from happening.
According to recent reports, a "shadow inventory" of thousands of foreclosed and "pre-foreclosed homes" is hanging over the real estate market, with the potential to effect every homeowner -- even those who are not jobless or "underwater."
When thousands of houses are foreclosed on or go on the market and remain unsold, nearby homes and properties lose value. This creates a downward spiral that saps personal wealth, depresses property taxes, depletes municipal treasuries, reduces consumer spending and leads to layoffs and job losses.
More joblessness, in turn, causes still more homeowners to fall behind, which results in still more foreclosures, further prolonging the recession.
Where does it end? According to market analysts quoted in a recent New York Times article, "New Jersey has the largest inventory in the country" of unsold homes, some "41 months worth." And most of them "aren’t even on the market yet."
They soon will be, according to Jeffrey Otteau, an East Brunswick-based analyst. He foresees a "gusher of foreclosed properties, possibly a royal market mess" from thousands of houses dumped on the market at the same time.
A chart of foreclosure data supplied by the Administrative Office of the Courts shows a steady rate of foreclosure filings of 15,000 to 20,000 per year from 1996 through 2006. Then the trend line banks steadily upward: jumping to 30,000 foreclosures in 2007; 45,000 in 2008; and 60,000 in 2009. Finally, for this year, the courts are expecting 65,000 foreclosure filings.
Thus, since 2007 when the Great Recession officially took hold, some 200,000 Garden State homeowners have been on the receiving end of foreclosure notices. That’s more than twice the number of foreclosures in the prior ten years of judicial recordkeeping. And it could go even higher next year.
What is the state doing to help ease this crisis?
According to Anthony Marchetta, executive director of the New Jersey Housing and Mortgage Finance Agency (HMFA), his agency is leading the state’s four-part Foreclosure Prevent Program.
The most ambitious element is Home Keepers, which provides 0% interest, deferred-payment loans to unemployed homeowners who "through no fault of their own," cannot keep up their payments.
Marchetta says the state will have $300 million for these loans. The program, which will be launched "early next year," comes not a moment too soon.
Also available is the Mortgage Assistance Program (MAP), started two years ago. MAP lends up to $20,000 to "qualified homeowners to bring mortgages current or to refinance" their loans. Counseling and mediation are also provided through the National Foreclosure Mitigation Program and the Judiciary’s Foreclosure Mediation Program, which also assigns lawyers for "income-eligible homeowners."
As helpful as these programs may be and despite Marchetta’s best efforts, much more will be needed, especially in hardest-hit Atlantic, Bergen and Essex Counties, which account for nearly a fourth of foreclosures statewide.
More money is only part of the solution. Banks and mortgage services must cooperate. But how to get banks to help solve the problem they've done so much to create?
Attorney General Paula Dow may hold the key. Her office has joined a 49-state effort to investigate banks using robo-signers for affidavits of ownership and amounts due. These affidavits are sworn statements. They must be made by senior bank officers, attesting to their factual knowledge of the mortgage note.
Instead, many finance giants have employed low-level, even temporary, workers to sign hundreds of these statements every day, with little or no review of the mortgage terms or the lenders payment history.
Terrible mistakes get made as a result of these robo-signings. Some homeowners who were current on their mortgage or had even paid it off have awakened to the sound of the sheriff nailing foreclosure and eviction notices to their front door.
This is where the Attorney General should step in. Falsely signing an affidavit is not only perjury but also actionable fraud. It can serve as the basis of a Consumer Fraud Act suit, which is required to award treble damages and attorney's fees to the prevailing party.
When Gov. Chris Christie was the U.S. Attorney, instead of indicting companies, he used civil monitors -- such as former Judge Herb Stern -- who effectively ran offending institutions until the corruption was rooted out.
The same model could apply to robo-signing banks. Give them a choice: Either be indicted or be sued and agree to a mortgage forbearance and restitution fund to help Marchetta keep thousands of families in their homes and help end this blight of foreclosed properties.