Newark will be one of the national testing grounds for a new initiative to keep homeowners facing foreclosure under their own roofs.
New Jersey Community Capital of New Brunswick, a nonprofit housing group, acquired troubled mortgages on 150 properties in the city with the goal of offering favorable modifications to the owners.
The units were part of a package of delinquent mortgages offered at auction to nonprofits and investors by the Federal Housing Administration, with an eye to balancing its books while giving borrowers a potential second chance.
Delinquency doesn’t mean the owners were deadbeat borrowers, according to NJCC President Wayne Meyer. While the Newark properties carry a cumulative $47 million in mortgage debt, their total current market value is only $22 million, he said.
That sort of red ink has been showing up all over portfolios at the FHA, which insures an estimated $1.1 trillion in mortgages, some issued by private lenders under questionable circumstances.
FHA is limited in changing terms, but as it attempts to get out from under that burden, the agency is steering properties to lenders who can offer more flexible terms to borrowers.
“These properties are all under water, by 200 percent” because of plummeting property values following the bursting of the bubble in the housing market, Meyer said. With financial backing from high-profile corporate investors, NJCC intends to offer new mortgages that reflect the current market, he said.
“Our primary goal is to keep the homeowners in their homes,” Meyer said.
Although primarily “single-family” homes, that definition includes some divided into two, three or four units, said McCaela Daffern, of NJCC’s resource development department.
While the ultimate fate of the mortgages depends on workouts with the owners, tenants should know that “we’re committed to making sure that anybody who is in there now has a favorable outcome,” she said.
This fall, the U.S. Department of Housing and Urban Development, FHA’s parent agencies, authorized groups to bid on packages of mortgages on 9,400 properties. The second auction targeted homes in Chicago, Newark, Phoenix, and the Tampa area.
HUD limited both sales to groups with track records in housing. It recommended NJCC to the state housing agency in Florida, an area particularly hard hit by questionable mortgage and foreclosure practices. As a result, that state endorsed the group to bid on a package of 249 mortgages around Tampa Bay.
“At first, they didn’t intend to include any Newark properties in the auction,” Meyer said. “They were hoping the state would use of its [federal] hardest-hit aid for that purpose.”
New Jersey’s combination of high unemployment and numerous foreclosures qualified it for $300 million in relief from the U.S. Department of the Treasury’s “hardest hit” kitty, part of the Troubled Asset Relief Program.
But in October, Community Affairs Commissioner Richard Constable acknowledged at a legislative hearing that the state initially bungled the program, failing to spend its share. Constable said staff and procedural changes have reformed the program. Opinions in the housing community are split, but there is some optimism.
The HUD announcement “is great news,” said Mary Szacik of NJ Communities United, which is pushing this week for state action to help resolve the foreclosure crisis and use available funds.
New Jersey has the second highest foreclosure rate in the nation, behind Florida, and a backlog estimated by court officials at anywhere from 50,000 to 150,000 cases.
In the absence of state action, not only did NJCC create a subsidiary to handle the Florida mortgages, it put together its own financing and convinced HUD to include Newark in the program. Prudential Financial, MetLife, and Newport Capital Bancorp. have committed the bulk of the $78 million total of the effort, named ReStart.
Working with the city, NJCC convinced HUD to include properties in neighborhoods in need of stabilized housing markets, according to Meyer. The affected properties are located in the West Ward, upper Clinton Hill, lower Broadway, and Roseville
“The NJCC’s ReStart program is an innovative way to directly tackle the heart of the foreclosure and mortgage crisis,” Lata Reddy, Prudential’s vice president of corporate social responsibility, said in a statement.
Dennis White, vice president of corporate contributions and social investments at MetLife, predicted the program “will minimize the impact these troubled mortgages have on both homeowners and the surrounding communities.”
John Vasquez, Newport capital’s chairman, said the effort matches the company’s goal of helping minority and economically hard-hit communities.
In that respect, the housing landscape looks significantly different around Tampa, according to Meyer. While the program there covers more properties, 249, compared to those in Newark, they have lower outstanding debt, $31 million, and lower total value, $17.6 million, he said.
HUD only requires a 50 percent success rate in keeping the owners in their homes, but Meyer is confident that “we’ll easily beat that.” Many were trying for modifications with their previous lenders before moratoria and administrative delays took hold, he said.
While some may prefer to walk away because of unemployment or other circumstances, ReStart will offer a number of options to keep occupants or find new ones, including lease-to-own options, he said. Meyer said he personally visited the properties, although did not meet all the owners.
NJCC cannot contact owners or tenants to discuss the situation until the December 22 closings on the federal auction. But the group plans to move quickly to offer better deals to borrowers, Meyer said, adding he hopes to have that completed by February.