(TRENTON) – Aiming to help homeowners with negative home equity avoid foreclosure and short sales, and prevent further agitating the state’s troubled housing market, legislation sponsored by Assembly Democrats Carol Murphy and Wayne DeAngelo recently cleared the Assembly Housing and Community Development Committee.
The bill (A-3430) would establish the “Mortgage Assistance Pilot Program” in the New Jersey Housing and Mortgage Finance Agency (HMFA) for a period of three years to allow homeowners, who have negative home equity and who are in default on an agency owned mortgage, to lower their principal balances by transferring shares of equity in the mortgaged property to the agency.
Negative home equity occurs when the remaining principal owed on a mortgage is greater than the current value of the home. New Jersey continues to lead the nation in foreclosure rates.
“The benefit of this pilot program is that it will assist New Jersey homeowners with negative home equity, and who have defaulted on a mortgage owned by the agency, stay in their homes,” said Murphy (D-Burlington). “This in turn will help reduce the foreclosures and short sales that are stifling the recovery of the housing sector in New Jersey.”
“Homeowners with negative home equity are much more likely to default on their mortgages than those with positive home equity, leading to more foreclosures and short sales, which further depress the value of neighboring homes,” said DeAngelo (D-Mercer, Middlesex). “This bill gives these homeowners another option, and helps avoid any additional strain on the state’s housing market.”
The bill’s pilot program requires NJ HMFA to invite each homeowner who is in default of a qualified mortgage to apply for a principal reduction agreement. The bill would limit the reduction to no more than 30 percent, and would allow the interest rate to be reset to lower existing rates, if applicable. The bill would condition the principal balance reduction upon the homeowner’s conveyance of an equity share to NJ HMFA equal to the percentage of the principal reduction.
As to NJ HMFA’s equity shares, the bill would provide that the equity share interest does not give rise to a government property tax exemption on the property. This bill also denotes that an NJ HMFA equity share does not constitute a property encumbrance or lien for purposes of municipal tax sales. This means that a property tax foreclosure may be initiated and proceed without regard to an outstanding NJ HMFA equity share.
The measure would require the Department of the Treasury, in consultation with NJ HMFA, to produce a report on the pilot program that must be submitted to the Legislature and the governor no later than the first day of the tenth month following the conclusion of the three-year pilot program.
Under the bill, the report must address the extent to which the pilot program enabled NJ HMFA to minimize losses and reduce foreclosures and short sales.
The bill would authorize the Commissioner of Community Affairs and NJ HMFA to adopt rules and regulations necessary to effectuate this bill’s provisions. If enacted, it would take effect on the first day of the fourth month following the date of enactment, but would allow the Commissioner of Community Affairs and the Executive Director of NJ HMFA to take anticipatory administrative action prior to this bill’s effective date.
The bill was introduced in March 2018. It now awaits further consideration from the Assembly.