Fair Housing - Subprime mortgages, Foreclosures and Predatory lending

The year 2007 saw the explosion of the ticking time bomb of concentrated subprime and predatory lending in New Jersey's urban communities, as New Jersey and the rest of the country began to experience skyrocketing foreclosure rates. In 2008 there were more than 53,000 foreclosure filings in New Jersey. Just under one in every 100 New Jersey households were affected. That's the highest foreclosure start rate the state has seen since the industry began tracking data in 1979. The foreclosure crisis affects all New Jersey residents, by destabilizing neighborhoods, lowering property values and increasing the pressure on public services. As one measure of the costs, the state is expected to lose $99 million per year in property tax revenue as a result of the crisis.

While every county in New Jersey is affected, our cities are particularly hard hit due to a history of disinvestment, redlining and predatory lending practices. The Newark metro area accounted for more than 35% of the state's foreclosure filings in the most recent quarter. The Institute believes that the response to the crisis should recognize and address the history of racial and economic disparities in lending.

The Institute's engagement on this issue is a natural outgrowth of our long-term work on predatory lending, sustainable homeownership and other issues around access to affordable and appropriate credit in New Jersey communities.

The Institute has engaged the issue on multiple levels:

• At the statewide level, the Institute partnered with New Jersey Citizen Action and the Housing and Community Development Network of New Jersey to draft the "New Jersey Homeownership Preservation Act.". In December of 2008, the New Jersey Legislature passed a modified version of the legislation called the "Mortgage Stabilization and Relief Act," which was signed by the Governor on January 9, 2009.
• At the local level, the Institute joined the City of Newark and the Essex County Division of Housing and Community Development to convene a working group of experts and advocates to address the problem of subprime mortgage foreclosures in Newark and surrounding areas. The Newark/ Essex Foreclosure Taskforce immediately attracted widespread and enthusiastic interest from community groups and local and regional government and continues to meet monthly. Activities include research, public education and outreach, counseling, financial product development and legal advocacy.

NEW JERSEY HOMEOWNERSHIP PRESERVATION ACT

The Institute partnered with New Jersey Citizen Action and the Housing and Community Development Network of New Jersey to draft the "New Jersey Homeownership Preservation Act." It was introduced in March, 2008 by Senator Ronald L. Rice and Assembly Majority Leader Bonnie Watson Coleman. As originally drafted, the bill contained an innovative scheme which created a financial incentive for subprime lenders and servicers to negotiate with borrowers before initiating foreclosure proceedings. The bill also contained several other provisions designed to protect homeowners and reduce the impact of foreclosures on communities.

In December of 2008, the New Jersey Legislature passed a modified version of the legislation called the "Mortgage Stabilization and Relief Act," which was signed by the Governor on January 9, 2009.

While the Mortgage Stabilization and Relief Act did not include the incentive mechanism, almost all of the other protections survived, a significant victory in the legislative process.

Two of the important protections surviving from the original bill are a provision giving homeowners with adjusting interest rates the option of a 6-month forbearance period and a provision which makes it easier for municipalities to hold lenders responsible for abandoned properties creating health and safety dangers.

The Act also includes two new programs advocated by the administration that provide funds to support reductions in principal balance for some loans and support to non-profit organizations engaged in homeownership preservation activities. These programs are part of a concerted effort by the legislature and the administration to address the foreclosure crisis.

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