On February 10, Senator Robert Menendez (D-NJ), Chair of the Senate Banking, Housing and Urban Affairs Subcommittee on Housing, Transportation and Community Development held a field hearing, “Saving our Neighborhoods From Foreclosures,” in Plainfield, NJ.
The hearing coincided with the announcement a day earlier of a $26 billion settlement between 49 states and major banks. The agreement will bring roughly $800 million to New Jersey. Senator Menendez, along with several of the witnesses at the hearing, addressed the settlement funds. Senator Menendez said that the settlement announcement was a “long way from healing wounds” and was just a drop in the bucket compared to the massive size of the problem.
Senator Menendez opened the meeting by reflecting on how it has always been “everyone’s dream to own a home” and that “buying a home is an accomplishment.” Senator Menendez admitted that times have changed, but emphasized that the “American dream still exists.” Senator Menendez suggested that it was time to think outside the box, including finding solutions to deal with vacant homes and providing incentives for rental alternatives. Senator Menendez expressed support for additional resources for the Neighborhood Stabilization Program as well as efforts to transition foreclosed homes into rental properties. Senator Menendez endorsed the strategy of Shared Appreciation Mortgages, in which a lender agrees to an interest rate lower than the prevailing market rate, in exchange for a share of the appreciated value of the home upon its sale.
Several witnesses explained the impact of foreclosures on neighborhoods. New Jersey Assembly Speaker Pro Tempore Jerry Green reminded everyone that this is a situation that affects not only poor people, but the middle class as well. Mr. Green spoke of a bill he is working on that would let towns purchase foreclosed homes and turn them into housing for low and moderate income families. The bill would create a temporary Foreclosure Relief Corporation to purchase the homes. Municipalities where the homes are located would then get a “right of first refusal” to purchase them through the $268 million affordable housing trust fund, then dedicate them as affordable housing.
The Mayor of Plainfield, NJ, Sharon Robinson-Briggs, made the connection between foreclosures and employment, reminding Senator Menendez of the 1,100 jobs lost in the city due to the closing of its major employer, Muhlenberg Hospital. She also talked about the length of time the modification process takes for homeowners. Ms. Robinson-Briggs suggested that banks should either forgive the amounts that added up at the point of modification or add these to the loan at the back end. The Mayor also said that funds are needed to help displaced homeowners.
Krishna Garlic, representing Brand New Day, a community development corporation that does real estate development, community education and organizing, property management, and youth services, also testified. Ms. Garlic reiterated a comment made by Ms. Robinson-Briggs that the majority of clients seen by her organization are coming due to unemployment or under-employment. Ms. Garlic then shared the story of one particular client who Brand New Day spent nearly a year trying to help to no avail due to the arduous processes and procedures involved in loan modification. A solution she offered was for banks to lease homes back to homeowners as tenants. She also stressed that additional funds were needed for counseling and for the extensive “post-counseling” required in the “healing” process.
Wayne Meyer, representing New Jersey Community Capital (NJCC), stressed that beyond the impact on individuals and families, foreclosure compromises “neighborhoods of choice.” Mr. Meyer shared that NJCC is offering “mini-perm” loans to developers to convert what were to be homes sold to owners into rental housing. Mr. Meyer also talked about the work of an auxiliary to NJCC that purchases REO properties in bulk to enable early intervention, but stressed that banks are needed to help in the acquisition process. Finally, he talked about the development of the NJ Mortgage Resolution Fund (based on the Illinois model), which is poised to use a portion of the state’s Hardest Hit allotment to purchase mortgage paper and work to keep homeowners in their homes by initial refinancing and then reduction of principal. He expects close to 2000 NJ homeowners will benefit from the program.
Phyllis Salowe-Kaye, representing NJ Citizen Action, testified that the number one priority is to keep people in their homes, then to preserve existing properties as a way of preserving neighborhoods. Ms. Salowe-Kaye said she supports strong mandatory standards for loan modification and an end to abusive practices. In reference to the settlement agreement announced the previous day, she said it remains unclear how those funds will be deployed. Ms. Salowe-Kaye did state that there should be a mandate for banks to write down loan principals and she reinforced the Shared Appreciation Mortgage program outlined by the Senator. Above all, she too stressed the key role housing counselors play and a greater need for alignment between the various programs and counseling agencies, as well as additional resources for counseling.
Alan Mallach of the Brookings Institution and a Board Member Emeritus of the Housing and Community Development Network of NJ, said that a shared appreciation mortgage program would have far more impact than the announced “settlement.” Mr. Mallach said that reducing the number of homes in foreclosure is a key way to stabilize neighborhoods and that legislation is needed to enforce principal reductions. Mr. Mallach agreed with other witnesses that people should be allowed to stay in their homes as tenant and that the Protecting Tenants at Foreclosure Act needs “teeth.” Mr. Mallach agreed that the foreclosure process has dragged out unnecessarily and that legislation is required to expedite it as a way of preserving properties and avoiding the national crisis of the collapse of entire neighborhoods.
NLIHC thanks Joan Straussman, Director of Programs for the Housing and Community Development Network of NJ, and NLIHC State Partner, for writing this article.