Real Estate in West Orange
Marsha Bowen Washington

Senator Menendez Proposes a Bill to Help NJ Homeowners Avoid Foreclosure

With numerous “zombie foreclosures” in process and foreclosure filings on the rise, Senator Menendez has proposed “The Preserving American Homeownership Act” for struggling homeowners.   A recent Realtytrac report found New Jersey has the highest “zombie” foreclosure rate in the country, with one out of every 201 housing units vacated before a completed foreclosure. These owner-vacated foreclosure properties likely end up as short sales, foreclosure auction sales, or bank-owned sales.

“Far too many New Jerseyans are underwater on their mortgages and are all too familiar with the burden this brings,” Senator Menendez said. “My bill aims to give homeowners the break they need by working with banks to find acceptable solutions for everyone. Not only can we help families stay in their homes, we can mitigate the impact zombie foreclosures have on our communities and our economy.”

The Preserving American Homeownership Act is specifically aimed at homeowners who owe more than their house is worth (“underwater”), which is currently estimated to be 5.1 million homeowners, or more than 10 percent of all homes with a mortgage, according to CoreLogic.  About two million of these homeowners are underwater by a significant amount – they owe at least 25 percent more than the value of their home.  Underwater mortgages continue to be a drag in some housing markets.

The legislation seeks to help both parties – homeowners and lenders – by creating a program in which banks reduce the mortgage principal for eligible homeowners.  In exchange, banks would be entitled to a portion of any increase in the value of the home down the road. The program is a win-win for everyone: underwater homeowners receive relief on their mortgages, while banks agree to take a short-term reduction for a long-term gain as the housing market recovers.  In a similar program tested by a private mortgage servicer, almost 80% of homeowners who were offered the opportunity to participate chose to do so and had a re-default rate of only 2.6%.

The principal balance of the loan would be reduced to 100% or less of the re-assessed value of the home, provided the homeowner is able to make reduced payments; the principal balance would be reduced in 1/3 increments per year.
In exchange, the bank would receive a fixed share (of up to 50%) of the increase in the home’s value when the home is sold or later refinanced, up to a maximum of twice the amount of principal reduced. The share depends on factors to be determined by the Federal Housing Finance Agency (FHFA) and Federal Housing Administration (FHA), including how much the bank initially reduced the principal.

Home values would be determined by independent third-party appraisers for the lenders.  Two federal government entities, FHA and FHFA would initiate pilot programs first.  This could be a “win win” for both lenders and struggling homeowners.

Homeowners are eligible no matter how far underwater they are, but they must qualify for a mortgage modification and make timely payments on the modified mortgage going forward or they will not receive any principal reduction.

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About Marsha Bowen Washington

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Marsha Bowen Washington

Realtor/Sales Associate

973-510-0014973-510-0014 main

Coldwell Banker Residential Brokerage

2 E. Mt. Pleasant Avenue Livingston, NJ 07039



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