ASSEMBLY APPROPRIATIONS COMMITTEE
ASSEMBLY, No. 955
STATE OF NEW JERSEY
DATED: OCTOBER 2, 2014
The Assembly Appropriations Committee reports favorably Assembly Bill No. 955.
This bill establishes the "Mortgage Assistance Pilot Program" in the New Jersey Housing and Mortgage Finance Agency (“NJ HMFA”) for a period of three years to allow certain 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.
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 limits the pilot program’s principal balance reduction of a qualified mortgage to no more than 30 percent and allows the interest rate to be reset to lower existing rates, if applicable. The bill conditions the pilot program’s principal balance reduction upon the homeowner’s conveyance of an equity share to NJ HMFA equal to the percentage of the principal reduction.
Generally, the bill establishes two pathways for homeowners to redeem NJ HMFA’s principal balance reduction equity share. The preferred redemption pathway involves maintaining home ownership for at least five years following entry into the pilot program and redemption of the equity share, following satisfaction of the underlying mortgage, via repayment through a 10-year repayment period or sale proceeds. Note the bill does allow the pilot program to negotiate variable repayment arrangements.
The disfavored redemption pathway involves disposal of the property within five years of entering the pilot program, which entails payment of a five percent sales price penalty in addition to an NJ HMFA claim on resale proceeds sufficient to redeem NJ HMFA’s principal balance reduction equity share.
As to NJ HMFA’s equity shares, the bill provides that the equity share interest does not give rise to a government property tax exemption on the property. The 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 bill requires 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. The bill requires the report to address the extent to which the pilot program enabled NJ HMFA to minimize losses and reduce foreclosures and short sales.
The bill authorizes the Commissioner of Community Affairs and NJ HMFA to adopt rules and regulations necessary to effectuate the bill’s provisions.
The bill takes effect on the first day of the fourth month next following the date of enactment, but permits the Commissioner of Community Affairs and the Executive Director of NJ HMFA to take anticipatory administrative action prior to the bill’s effective date.
The bill is likely to increase costs incurred by the NJ HMFA that will vary in magnitude depending upon the scope of the program as implemented. By reducing the amount of principal and interest on NJ HMFA mortgages in exchange for equity shares, NJ HMFA may receive insufficient mortgage payments for purposes of servicing related mortgage revenue bonds. This may cause NJ HMFA to use other funds (such as surplus, funds designated for other programs, or funds held in a debt service reserve) to make scheduled mortgage revenue bond payments.
In addition to potentially reducing mortgage payment receipts, the bill may prolong repayment periods owing to the ten-year equity share repayment period that commences after final payment on a restructured NJ HMFA mortgage.
However, the bill may generate some additional revenue to offset a portion of its additional costs. For properties subject to an NJ HMFA equity share that are disposed of by the owner within five years of program entry, NJ HMFA is entitled to a five percent sales price penalty in addition to repayment of the NJ HMFA mortgage and equity share.