Foreclosure Breather Proposed

The Record ( — Tuesday, March 11, 2008


New state proposals would require lenders to wait six months and pay a fee before foreclosing on certain homeowners who are in default, state Sen. Ronald Rice said Monday.

The proposed moratorium and $2,000-per-foreclosure fee to be introduced today in Trenton by Rice of Newark and Assemblywoman Bonnie Watson-Coleman of Trenton is aimed at slowing the pace of foreclosures and keeping people from losing their houses.

"We have to do something to protect homeowners who may be qualified to stay in their homes," Rice said in a phone interview.

The rate of new foreclosures in New Jersey hit a record high in the fourth quarter, according to the Mortgage Bankers Association. Nationwide, new foreclosure filings and the total number of homes in the process of foreclosure were at record levels in the fourth quarter, the group said.

Consumer advocates estimate 13,500 to 16,000 New Jersey homeowners with riskier, higher-cost loans will lose their homes this year. In many instances, homeowners started out with low teaser rates that shot up after two or three years to rates they couldn't afford. In a down housing market with falling home values, cash-strapped borrowers are finding it difficult to refinance or sell to pay off their over-burdensome debt.

The majority of the expected foreclosures will likely involve homes financed with subprime, adjustable-rate mortgages, said Phyllis Salowe-Kaye, executive director of consumer watchdog New Jersey Citizen Action, a leading advocate of the legislation that would amend exist- ing laws on foreclosures. The Housing and Community Development Network of New Jersey and New Jersey Institute for Social Justice are other main supporters.

The impact fees would be used to establish a fund for foreclosure-prevention counseling and payment catch-up loans. The proponents say the fees would raise $27 million to $33 million in the first year. The fund would be overseen by the state Department of Community Affairs.

If passed as is, the legislation also would make it possible for people who have lost their homes to live in them as tenants until the houses are sold. And it would provide protections against lending abuses in the future.

More details of the proposed changes will be announced today.

Salowe-Kaye said she expects strong opposition from the mortgage lenders and bankers.

"I don't think it will be an easy bill to pass," she said.

Tom Kelly, a spokesman for J.P. Morgan Chase & Co., commented Monday that "a long-term moratorium is not the right solution."

Chase is one of a group of large lenders volunteering to pause 30 days before taking legal action, "if the borrower calls to figure out what's possible," Kelly said.

Chase, which services its own loans and those of other lenders, has modified or refinanced $3.6 billion in subprime, adjustable-rate loans in response to the crisis, he said. Still, the company is having a hard time contacting many borrowers in default, despite phone calls and past-due notices, he said.

Chase and other lenders have argued for national standards to address the foreclosure issue.

"This is a problem across all states," he said. "A consistent solution across all states makes the most sense."

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