[Senate Hearing 112-461]
[From the U.S. Government Publishing Office]
S. Hrg. 112-461
SAVING OUR NEIGHBORHOODS FROM FORECLOSURES
=======================================================================
FIELD HEARING
before the
SUBCOMMITTEE ON
HOUSING, TRANSPORTATION, AND COMMUNITY DEVELOPMENT
of the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
ON
EXAMINING THE EFFECTS OF FORECLOSURES AND SOLUTIONS TO THEM, THEIR
EFFECTS ON NEW JERSEY NEIGHBORHOODS, SUCH AS DECLINES IN HOME VALUES,
CRIME, AND DISPLACED FAMILIES; AND DISCUSSING STEPS TAKEN TO HELP END
THE FORECLOSURE CRISIS
__________
FEBRUARY 10, 2012
__________
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
TIM JOHNSON, South Dakota, Chairman
JACK REED, Rhode Island RICHARD C. SHELBY, Alabama
CHARLES E. SCHUMER, New York MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey BOB CORKER, Tennessee
DANIEL K. AKAKA, Hawaii JIM DeMINT, South Carolina
SHERROD BROWN, Ohio DAVID VITTER, Louisiana
JON TESTER, Montana MIKE JOHANNS, Nebraska
HERB KOHL, Wisconsin PATRICK J. TOOMEY, Pennsylvania
MARK R. WARNER, Virginia MARK KIRK, Illinois
JEFF MERKLEY, Oregon JERRY MORAN, Kansas
MICHAEL F. BENNET, Colorado ROGER F. WICKER, Mississippi
KAY HAGAN, North Carolina
Dwight Fettig, Staff Director
William D. Duhnke, Republican Staff Director
Dawn Ratliff, Chief Clerk
Riker Vermilye, Hearing Clerk
William Field, Legislative Assistant
Shelvin Simmons, IT Director
Jim Crowell, Editor
______
Subcommittee on Housing, Transportation, and Community Development
ROBERT MENENDEZ, New Jersey, Chairman
JIM DeMINT, South Carolina, Ranking Republican Member
JACK REED, Rhode Island MIKE CRAPO, Idaho
CHARLES E. SCHUMER, New York BOB CORKER, Tennessee
DANIEL K. AKAKA, Hawaii PATRICK J. TOOMEY, Pennsylvania
SHERROD BROWN, Ohio MARK KIRK, Illinois
JON TESTER, Montana JERRY MORAN, Kansas
HERB KOHL, Wisconsin ROGER F. WICKER, Mississippi
JEFF MERKLEY, Oregon
MICHAEL F. BENNET, Colorado
Michael Passante, Subcommittee Staff Director
Jeffrey R. Murray, Republican Subcommittee Staff Director
(ii)
?
C O N T E N T S
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FRIDAY, FEBRUARY 10, 2012
Page
Opening statement of Chairman Menendez........................... 1
WITNESSES
Jerry Green, Assemblyman and Speaker Pro Tempore, New Jersey
General Assembly............................................... 6
Prepared statement........................................... 29
Sharon Robinson-Briggs, Mayor, Plainfield, New Jersey............ 7
Prepared statement........................................... 29
Krishna Garlic, Chief Executive Officer, Brand New Day........... 9
Prepared statement........................................... 30
Wayne T. Meyer, President, New Jersey Community Capital.......... 11
Prepared statement........................................... 32
Phyllis Salowe-Kaye, Executive Director, New Jersey Citizen
Action, and Former member, Consumer Advisory Council, Federal
Reserve Board of Governors..................................... 13
Prepared statement........................................... 35
Alan Mallach, Non-Resident Senior Fellow, Brookings Institution.. 14
Prepared statement........................................... 37
(iii)
SAVING OUR NEIGHBORHOODS FROM FORECLOSURES
----------
FRIDAY, FEBRUARY 10, 2012
U.S. Senate,
Subcommittee on Housing, Transportation, and Community
Development,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Subcommittee met at 11:01 a.m. at Black United Fund
Health and Human Services, 403 West Seventh Street, Plainfield,
New Jersey, Hon. Robert Menendez, Chairman of the Subcommittee,
presiding.
OPENING STATEMENT OF CHAIRMAN ROBERT MENENDEZ
Senator Menendez. Good morning. As Chairman of the Senate
Banking Subcommittee on Housing, Transportation, and Community
Development, let me call this Congressional field hearing to
order.
Let me first thank the Black United Fund for hosting this
field hearing, an incredible organization that has assisted
over 700 community-based organizations, and their mission
touched upon 16 of the 21 county Health and Human Services
agencies that have received their support and whose goal is to
enable individuals to help themselves create a better sense of
self-worth and a better self-identity and ultimately self-
sufficiency. We thank them for hosting us.
I just had the privilege of meeting over 100 of the young
students who are taught here every day in the preschool program
and they had a lot to say. They were a happy group, so started
my day exceptionally well.
It is good to be home in New Jersey to welcome all of you
to this discussion on how we save our neighborhoods from the
problems of foreclosure, how we can help homeowners deal with
foreclosure and communities deal with the blight of foreclosed
properties.
Let me begin by looking back to a time when I was growing
up in New Jersey. It was and still is a place where people work
hard to build a better life for themselves and their families.
The economy was expanding. We enjoyed a vibrant, prosperous
manufacturing base that provided jobs that turned into lifetime
careers for millions of Americans. The middle class was
thriving, and it was everyone's dream to own a home. And buying
a home was a personal accomplishment, a family triumph. It was
a time in America where Government and the economy supported a
growing middle class, banks were more local, not global like
they are today, a time when they had a stake in each mortgage
in the community they served and they knew their customers
personally.
Times have changed, and some say the old American dream no
longer exists. But I think they are wrong. I believe that
America's middle class spirit, that hope for a better life, is
still alive in the hearts of every family here in Plainfield
and across the country.
So today's hearing is about more than numbers and
statistics, more than the fact that 1 of every 10 homes in
Plainfield is in foreclosure. It is about values, about people
and families and our communities and what we can do to help. It
is about finding opportunities to mitigate the foreclosure
crisis. But most of all, it is about hope, hope for Plainfield,
for New Jersey, and for every American family and neighborhood
that has been hit hard by the mortgage crisis and struggling to
stay above water.
Having said that, today, we will be hearing from six
witnesses on how to best alleviate the burden of foreclosures
and how we can mitigate the impact of foreclosures on our
neighborhoods. Today, I hope to hear not only how we can
streamline the process and make it as fair and as painless as
possible for homeowners, but how we can help communities like
Plainfield deal with the vacant houses that exist, whether that
be incentives for conversion to rental or, in some cases, where
there are other resources for the community that would make
sense.
Today, I would like to hear outside-the-box ideas on what
creative solutions our witnesses may have and what the
possibilities are. We have already made some inroads, but there
is much more we can do.
As Chairman of the Subcommittee, I have held multiple
hearings to find ways to get the housing market back on track
and create jobs. We have investigated bank practices to hold
them accountable, sought ways to expand programs to help
struggling homeowners deal with an overly cumbersome and
complicated process. I have worked to bring home millions of
dollars to the Garden State for the construction of affordable
housing units throughout the State and supported legislation to
create a Homeowner Advocate to be a one-stop-shop for
homeowners looking for help.
Most importantly, I have supported efforts to hold banks
and the Government more accountable for their actions and to
protect homeowners from predatory practices, lender
indifference, and untimely and unreasonable demands that make a
bad situation worse for families already struggling.
And looking forward, I have proposed my own comprehensive
action plan that will address all aspects of the housing
market, and I will also be working with President Obama to put
his housing plan into action, both of which will help New
Jersey families stay in their homes, and I hope our witnesses
will touch on aspects of this plan in the course of their
testimony today.
I also wanted to mention that the settlement between the
State Attorney Generals and big banks came out yesterday, so
this hearing is very timely. While the $26 billion settlement
helps homeowners, it is a long way from healing the grievous
wounds left by the crisis and deceptive mortgage practices.
When I think about $700 billion nationwide underwater, $26
billion may be welcome, but it is not even 10 percent of that
challenge at the end of the day. There is still more that can
be done to help homeowners who were wronged by the foreclosure
crisis and will also provide, I hope, greater stability to the
housing market and improve the overall economy.
Specifically, we cannot address the basic foreclosure
issues for families if we do not first eliminate arbitrary
barriers imposed by lenders that prevent homeowners who are
underwater from refinancing at a fair interest rate. That is
one of the first things we need to do. And while we have
eliminated many of the barriers already, more needs to be done
and we look forward to working with the Administration to do
just that, to make sure that all responsible homeowners who
should be able to take advantage of our historically low
interest rates but unfortunately are not allowed in many cases
to do that. This was the subject of a hearing yesterday in
Washington of the full Banking Committee and it is something I
look forward to continuing to pursue.
I look forward to working with the President to help
families here in Plainfield and across the Garden State by
establishing a set of fair national foreclosure standards to
ensure that no bank--no lender is allowed to foreclose on a
home without following proper procedures and producing proper
documentation. Nor should they be able to foreclose on a
property without making every effort to modify mortgages so a
family has a reasonable expectation of having the chance of
staying in their home.
Homeowners should have the benefit of a single point of
contact for loan modifications to ensure continuity and
certainty in finding their way through what is inevitably, no
matter how many safeguards we implement, an emotionally
difficult process, and my office has dealt with this many times
in our assistance to homeowners working with lenders on loan
modifications, and very often that process moves from one
person to another to another and creates an incredible
challenge to that family trying to modify their loan.
I also believe there should be limits, reasonable limits on
foreclosure fees and that there should be a fair appeals
process for those denied loan modifications to ensure that
families get a fair shake, not just a quick rejection.
Fraud and homeowner abuse through service errors is also a
problem we must address. Miscommunications, illegal robo-
signings, which have sometimes resulted in wrongful property
loss, are simply unacceptable.
Because the process has proven to be so cumbersome, and
many times so callous, I strongly support foreclosure
counseling to help guide homeowners to their options to keep
their homes or make a smooth transition to the next option. In
fact, that is why I joined with others to send a request to
Senate appropriators requesting a restoration of funding for
HUD's Housing Counseling Program that was eliminated in the
fiscal year 2011 budget to avert a Government shutdown, and
while we did not get all of it back, we got most of it, and
that is certainly an important outcome, because in my view,
cutting housing counseling funding is a huge mistake when we
have record numbers of foreclosures and we know that homeowners
who get housing counseling advice are much more likely to get a
modification and stay in their homes.
We also need to help neighborhoods recover from foreclosed
properties, because the consequences are not just to the
families, of course, in the first instance, who face this
incredible challenge. But when you have a foreclosed property
and that property remains vacant, mayors face the challenges of
that reality, the attraction very often for it to become a
challenge, a nuisance in the community. And when multiple
properties are foreclosed, it devalues the values of other
properties in the neighborhood and sends a spiral downwards in
terms of property ratable basis. That is a challenge. So we
have requested $215 million for the Neighborhood Reinvestment
Corporation to rehabilitate and preserve existing buildings,
and why I support that Neighborhood Stabilization Program to
rehabilitate foreclosed homes.
Clearly, here in Plainfield and in every community,
foreclosed properties are having challenging effects, not only
for the families who have to move but for their neighbors.
Sales of these properties at bargain basement prices depress
the value of neighborhood homes, are often vandalized, become
eyesores, and attract crime. This begs the question of how we
can quickly and easily turn foreclosed homes into one option,
being rental properties. I believe we also need to have a
discussion about what other opportunities there exist.
Last, I am introducing today legislation that seeks to
create another opportunity for families under shared
appreciation mortgage modifications. We need to help homeowners
who are underwater through no fault of their own but can be
responsible borrowers. Because they owe more than the house may
be worth, they are more likely to allow the property to go into
foreclosure or walk away completely. They need help and hope
for a solution that allows them to remain in their home.
That is why I have introduced the American Homeownership
Preservation Act of 2012. Most banks still will not reduce the
amount that homeowners owe on their loans, so I believe we need
to use shared appreciation mortgages, which is a creative way
to reduce mortgage debt that is both fair to the homeowner and
the lender. Under the proposal, for homeowners who have lost
their jobs or experienced a hardship, banks would be required
to reduce homeowner mortgages to 95 percent of loan-to-value
ratio over 3 years and immediately lower the homeowner's
payments, provided the homeowner continues to make reduced
payments. In exchange, investors or lenders would get a share
of any appreciation in the home's value when the home is later
sold or refinanced, equal in percentage to the amount of
principal they reduced the home by in the first place. This
approach provides hope for families who have seen the value of
their home plummet, through no fault of their own, so that they
can remain in their homes if they can still responsibly make
payments.
And this is not some academic idea hatched in a laboratory.
This modification has already been tested by private companies
and it works. In fact, there is a homeowner here today who
received this mortgage modification and is still in their home
because of it. Mr. Igor Etienne would be more than happy to
speak with any members of the press or anyone who wants to
understand how it works in real practice. He is in the audience
and we appreciate his willingness to speak to anyone at the
conclusion of this hearing.
The Shared Appreciation Mortgage Modification Act of 2012
is only one tool needed among tools that I have been
encouraging. All options should be on the table. I hope we will
hear many more today, because doing nothing about foreclosed
properties, doing nothing to help communities like Plainfield
through this crisis is simply not an option. It is unacceptable
for me for homeowners to wait for years for the market to hit
bottom. Some suggest that it has. But it seems to me that we
just cannot wait for the market forces to take place. We need
and can do much more.
So let me introduce our witnesses for today. Let me welcome
Assemblyman Jerry Green, who is currently serving his 11th term
in the New Jersey Assembly. As Speaker Pro Tempore, Assemblyman
Green serves the 22nd Legislative District, which includes this
great community. He is also Chairman of the Assembly Housing
and Local Government Committee and we look forward to his
testimony and his initiatives.
Let me welcome our host Mayor, Sharon Robinson-Briggs, the
Mayor of Plainfield, who has represented the city in so many
capacities and is the past President of the Board of Education
here in Plainfield and the past President of the Plainfield
Branch of the NAACP. Thank you, Mayor, for hosting us here.
Krishna Garlic is the Chief Executive Officer of Brand New
Day, a nonprofit Community Development Corporation which
provides programs and services for individuals, families,
renters, homeowners, micro-businesses, and supporters of low-
to-moderate income population in New Jersey. We look forward to
her insights.
Phyllis Salowe-Kaye is the Executive Director of New Jersey
Citizen Action. She leads the largest HUD-certified counseling
agency in New Jersey that is helping thousands of borrowers to
navigate the complexities of saving their homes, and we
appreciate Phyllis's testimony at my last field hearing in
Hackensack last year.
And Mr. Wayne Meyer, who is the President of New Jersey
Community Capital, a nonprofit community development
institution that provides innovative loans, grants, and equity
to organizations that support housing and sustainable community
development ventures that increase jobs, improve education, and
strengthen neighborhoods.
And finally, let me welcome Professor Alan Mallach, who is
a Senior Fellow at the Brookings Institution and Board Member
Emeritus of Housing and Community Development Network of New
Jersey. He is a widely known and respected advocate, speaker,
and writer on housing and urban policy issues.
So my thanks on behalf of the Committee to all of you. We
are--as you may see, we have a Senate recording of the
testimony that is taking place. There are Senate Banking
Committee staff here. So your testimonies will be fully
included in the record. We ask you to summarize them in about 5
minutes so we can have some conversation and the testimony will
get wide dissemination among Members of the full Banking
Committee, as well.
So with that, Assemblyman Green, I know you have a schedule
that may bring you to Trenton, so we are going to ask you to
start off.
STATEMENT OF JERRY GREEN, ASSEMBLYMAN AND SPEAKER PRO TEMPORE,
NEW JERSEY GENERAL ASSEMBLY
Mr. Green. Well, first of all, Senator, I want to----
Senator Menendez. If you would use the microphone for the
Senate stenographer.
Mr. Green. First of all, I want to congratulate you for
bringing this meeting together. It is long overdue. Some of the
topics that you have touched on here in the State of New
Jersey, as Chairman of Housing and Local Government, we have
begun to move in that direction. Currently, we have some
proposals together with the Senate, working with Senator
Lesniak that deal with foreclosure and we are hoping and
confident that the Governor and his office will work with us.
So today's meeting and your approach is something that publicly
I want to acknowledge is well overdue and is needed.
What I have found last year when I dealt with some of these
housing issues was a lack of communication with Washington,
Trenton, and even local, and we have tightened that up. I had
the ability as chairman when we were talking about affordable
housing to go around the whole State and hold such meetings,
and we realize that there is a shortage of housing, but also
there is a shortage of dollars. And there are municipalities in
the State that have money already set aside for some of the
things that you and I are talking about.
So what we plan on accomplishing with this new bill is that
we would like to work with the Governor to tie in foreclosure.
We feel it is important that we keep a family in a home,
because once they lose their home, they become not only a
problem to the community, but the home itself becomes a
problem, and this is workable.
Our policies in the past dealing with housing are not
working. For the last 25 years, we have not seen anything
accomplished. We are not talking about a lot of new homes. We
are talking about affordable housing. Because here in my
district, even in the city of Plainfield, we have enough
housing. It is the question, how do we keep people in the
housing?
So it is important as I listen to your remarks that we
include the banking industry, we include Government, and we
include the community, because at the end of the day, the
bottom line is that these people have to have someplace to
live.
So I do not want to get too far into what I consider
negotiation that is going on with the front office with
foreclosure, but I am confident within the next couple of weeks
the Senator and I will make an announcement, and I am so happy
to be able to go back and report to the Committee that you are
a step ahead of us, and we are just so happy that we have a
Senator that really understands these issues, because these are
human issues. We are not talking any longer about poor people.
We are talking about middle-income people who have lost their
jobs and cannot afford the mortgage that basically they were
put into.
So we are not looking to hurt the bank. We are not looking
for Government to bail out. But I am hoping that this year,
with the budget, we do not have to have that as a line item.
What we need to do is make sure that dollars that are set aside
for housing go toward the project that you are talking about
this afternoon.
So I am looking forward to questions from the community and
I look forward to this dialogue with you because it is obvious
that you are going to be a very important part of how New
Jersey moves their housing industry.
You can look at some of our urban communities, like Camden
and others, and it is obvious their problems are a lot more
serious. But as I had staff give me the numbers here in
Plainfield, it is workable. It is doable. What I see was 5, 6
years ago, people put in positions that even the realtors and
the bank realized these people could not survive. We cannot
allow that to happen in the future. So we have to have policies
set in place that banks cannot take advantage of a community,
because at the end of the day, what happens is what has
happened in Plainfield. Right now, the bank owns about 125
homes. Right now, we have over 500 homes on the books that
could go either way. Again, this cuts across the whole
particular city. It is not just one part of the city anymore.
But also, I would like for you to make sure in your
approach to this whole issue that we do not have people take
advantage of the system. Whatever dollars come in, we want to
make sure those dollars go directly to the families to help
them bring down their mortgages, give them another life, not
have loose policies like it has been in the past where gimmicks
are put together and at the end of the day the public gets hurt
and we are right back where we started from.
So again, I am happy to be here with you today and I am
confident over the years you and I will work closely together.
And I am confident before Ray and I roll out our foreclosure
bill, that we would love to sit down with you to make sure we
are on the same page. Thank you.
Senator Menendez. Thank you.
Mayor Briggs.
STATEMENT OF SHARON ROBINSON-BRIGGS, MAYOR, PLAINFIELD, NEW
JERSEY
Ms. Robinson-Briggs. Good morning to everyone and welcome
to the city of Plainfield. I am Sharon Robinson-Briggs. To
Senator Menendez and Assemblyman Green as well as all of the
dignitaries here on the panel, as well as to Ms. Sondra Clark
who welcomed us here to this facility and to--I see members of
the Plainfield Housing Authority, HUD, Faith, Bricks and
Mortar, and the school district and One Stop and many of our
partners, Union County, representatives here--I want to put on
the record very briefly, Senator Menendez, that, first of all,
Senator Menendez is not a stranger here to the city of
Plainfield. He has come here often to discuss many pertinent
issues and ideas affecting not just the people in Plainfield,
but throughout the entire State of New Jersey, the 566
municipalities. He even came to my church with my pastor who is
here today, Reverend Tracy Hill Brown from the Fellowship
Ministries. You may remember her, as well, Senator Menendez.
Senator Menendez. I cannot forget her, Mayor.
Ms. Robinson-Briggs. I know. Me, either.
Senator Menendez. She gave me a blessing from the pulpit,
so----
Ms. Robinson-Briggs. Oh, excellent. She does that.
Senator Menendez.----and we wish her well.
Ms. Robinson-Briggs. Thank you so very much.
And I will not forget, to all the elected and appointed
officials who are here today.
I am Sharon Robinson-Briggs. I am here representing and
wearing different hats. I am Mayor of the city of Plainfield. I
am also here as a member of the Plainfield Area NAACP, also,
under the leadership of Peter Briggs, and also here as an
Executive Member of the New Jersey State League of
Municipalities. Mayor Ondish is the President and Bill Dresser
was the Executive Director. Also, as a member of the New Jersey
Urban Mayors Association under Mayor Wayne Smith, who is the
President.
But finally and maybe in this particular case maybe the
most important reason why I am here today, I am sitting here as
a homeowner in the city of Plainfield, County of Union, State
of New Jersey, 216 Pemberton Avenue, for the record. As a
homeowner, I have to say that it has been pretty tough, pretty,
pretty tough to maintain a mortgage on property these days.
Now, I think one of the biggest problems is that, or the
tie-in to the foreclosure problem is that it is directly
related to employment. You know, we have many people, not just
in Plainfield but throughout the State, who have either been
laid off, fired, and/or have been asked to take a reduced
salary. Now, a reduced salary is one thing, but it does not
equate to what is going on in the household. The expenses are
not being reduced, as we all know. So, therefore, there is this
unequal situation that is going on. I can tell you that even
within my own household, my husband, who was making one salary
which was wonderful, has been greatly decreased and I think
that that is something that has happened across the board. And
it is not due to anything that employees or residents have
done. It is just the economy.
For instance, in the city of Plainfield, we lost in the
last few years, our biggest employer, Muhlenberg Hospital, that
went down from a full-service facility to a satellite facility,
and we had 1,100 employees at Muhlenberg and we do not have
that kind of staff there. Many of those individuals resided
here in the city of Plainfield or in Union County, and, of
course, without a job, it is pretty tough to make the mortgage
demands. So, again, I think that the foreclosure rate is
really, really tied to employment and this economy.
I would like to speak for a moment with regard to--and I
thank banking officials for being here--because I think that we
need to be able to work closely together, municipalities and
banking officials, because there is the modification process,
but it really takes too long for homeowners to go through that
process. Oftentimes, I have been meeting with families who say
that it has been 4, 5, 6, 7, 8 months to get a final decision
as to whether or not they have qualified for the modification.
I would like to throw out to the banking world, and I know
that they are proactive and they want to help people stay in
their homes and that is all of our option at this point. That
is what we all would like to see happen. But I would like to
ask if banking officials can please take this information, as
well as our legislators, back to their bodies and discuss the
possibility of forgiveness of monies, back monies that are owed
on loans, maybe up to 3 months, or either put that on the tail
end of a loan and allow people to be able to start over,
because assessing extra fines and things of that nature is not
helpful to homeowners and I am sure that banks do not really
want to be landlords and/or property owners.
We have several properties in the city of Plainfield that
have been foreclosed upon. Unfortunately, we do not have any
way to help the folks who have been displaced because there is
not money available to them. People are kind of camping in with
other family members and doing things of that nature.
But in Plainfield, I am going to tell you briefly what we
have done to try to assist homeowners is to work with
organizations and facilities such as the Housing Authority,
such as HUD, such as Faith, Bricks and Mortar and other
certified counseling facilities so that they can educate our
community, and we have been having housing seminars. So we are
going to continue in that vein.
But thank you again, Senator Menendez, for bringing this
issue to the forefront because it is very vital to the
community of Plainfield.
Senator Menendez. Thank you, Mayor.
Ms. Garlic.
STATEMENT OF KRISHNA GARLIC, CHIEF EXECUTIVE OFFICER, BRAND NEW
DAY
Ms. Garlic. Good afternoon. I am grateful that the Senator
has made this venue available to call attention to the
unfortunate situation that families are still losing their
homes and many are sitting in limbo for years not knowing their
fate.
Take, for example, Regina, who came to Brand New Day for
help with her mortgage. She had heard about the HAMP program
and her mortgage was with one of the larger banking
institutions. Her mortgage payment was $1,200 a month and she
was current until she lost her job unexpectedly. She was
unemployed for 3 months before finding employment significantly
less than her previous job. Unemployment and under-employment
are the number one factors facing customers who come into our
office today. Brand New Day worked with Regina to submit her
modification request.
After 90 days, she was approved for a trial modification,
and the next 120 days were spent resubmitting documents,
numerous phone calls, and lots of tears as she waited for her
permanent modification. Six months of waiting to find out the
fate of her home ownership status and the memories of
sacrifices she and her husband had made to purchase a home for
their family were all flooding her with emotions. Thoughts of
where she and her family would live if the loan was not
approved, where she and her--where her children would go to
school. Where would they play? Where would they raise their
children? After all, she and her husband had children in this
house, this neighborhood, these neighbors.
Another 30 days went by before she was scheduled to meet
with her counselor. It has now been over 8 months and still no
resolution. She was saddened to hear during her appointment
that the request had been denied. The counselor advised her not
to give up, because in New Jersey, we have other programs. The
State's mediation program would give her an opportunity to
speak directly to the bank and make her case. Together with the
counselor, the mediation application was prepared and
submitted. More waiting. Regina's mediation date was scheduled
for 2 months out, but at least she could sleep sound at night
knowing that the sheriff would not show up at the door to
remove her family while waiting for her mediation date.
A week before the mediation date, Brand New Day worked with
her to update all of her paperwork and send it in to the bank
in preparation for the mediation process. So Regina found
herself frustrated and confused when the lender's attorney
reported to the mediation unprepared and requesting that the
process be continued.
On many occasions, cases at mediation are continued two and
three times, leaving homeowners in their houses but uneasy,
insecure, and full of anxiety. In addition, while decisions are
prolonged, fees and interest continue to accrue, making
negotiations with lenders even more difficult. It is our
recommendation that fees and interest be suspended during the
foreclosure modification process. In addition, the process
would be simplified and more effective if counselors had direct
access to the person who has the power to negotiate and make
the decision regarding the modification.
Regina finally, after an unsuccessful mediation process,
said that she would pursue a short-sell and put her house on
the market. At that point, she felt hopeless and believed that
this was her only option. The home stayed on the market for
many months with no offer. There were so many homes on the
market that at that time and in her neighborhood, there was
extremely low demand. She finally got an offer much less than
what she owed to the bank, in fact, $70,000 less. The offer was
submitted to the bank and Regina found herself yet again
playing the waiting game. She waited for months with no
response from the bank to approve the short sale.
The housing counselor at Brand New Day told Regina not to
get frustrated. There is a program called Cash For Keys that we
can negotiate on your behalf if you decide that you want to
move out. Regina was desperate. She and her housing counselor
made arrangements for the exchange. Unfortunately, the cash
arrived many months after she had moved and the funds could not
be used to help with her relocation expenses. Banks should be
required to give the cash within 30 days of the homeowner
vacating the property.
Regina and her family are now renting an apartment in
another town and another community. The children are now
attending school at a new school and have made new friends.
There is a greater distance between where she lives and where
she works. The family would have been better served if they
could have remained in their house as tenants. Banks should be
encouraged to allow homeowners to lease back the properties
after foreclosure so they can maintain stability for their
family and avoid vacancy in our neighborhoods.
In closing, Regina's story can be multiplied by thousands
across the State and millions across the country. Many of the
current Federal and State programs could be more useful if
guidelines were less restrictive. There are so many people that
need help and their situations are so different that we spend
numerous hours as counselors trying to determine who qualifies
for what program and trying to qualify the unqualifiable.
In addition, our counselors are an invaluable part of the
process in aiding a family from the first late payment through
resolution, which could mean a loan modification but also could
be transitioning into a new living situation. Funding for
housing counselors has been significantly cut in the State and
Federal budgets, and as demand continues and in many cases
increases, we need dollars to pay salaries and related costs.
Banks should be responsible to assist with the cost of healing
our communities.
So I want to thank you for your attention to this important
matter and ask the Senator that you continue to have
conversations and dialogue with housing counseling agencies as
we try to help families in New Jersey. Thank you.
Senator Menendez. Thank you very much.
Mr. Meyer.
STATEMENT OF WAYNE T. MEYER, PRESIDENT, NEW JERSEY COMMUNITY
CAPITAL
Mr. Meyer. Senator Menendez, good morning, and thank you
for the opportunity to speak with you today about New Jersey
Community Capital and the role we play in saving New Jersey's
neighborhoods from foreclosure. More importantly, thank you for
your tireless efforts to advance a comprehensive housing plan
designed to keep people in their homes, to fill vacant homes,
and to save our neighborhoods.
Senator, you mentioned at the beginning that the central
part of New Jersey Community Capital's work is to try to create
comprehensive sustainable neighborhoods through housing,
education, early child care, business development, and the
like. But what is clear to us in our work throughout the State
is that without a healthy housing market, it is almost
impossible to create those neighborhoods of choice. And the
foreclosure crisis, as enormous as it is, places pressure on
the abilities of neighborhoods to become good places to live,
work, and raise a family.
This crisis really requires interventions and strategies
across the mega-community approach, within the Government,
philanthropic, private, nonprofit sector. And I would like to
talk today a little bit about some of the programs we are using
at New Jersey Community Capital that are really designed to
help, along with your housing work plan, Senator, keep people
in their homes, prevent foreclosure, and save neighborhoods.
The first is a financing program. As a Statewide CDFI, we
have seen the lack of financing to groups around the State as a
real barrier for them to acquire and redevelop properties, and
to put them back into productive reuse. And so vacant homes,
which drain the life out of neighborhoods at a time when there
is a need for affordable housing, remain vacant.
At New Jersey Community Capital we are implementing a new
creative fund. We call it the Neighborhood Prosperity Fund,
which is designed to lend to groups around the State who can
meaningfully acquire properties, redevelop them, and put them
back into productive reuse. And this is a problem that has been
going on for years, because a lot of mainstream financial
institutions have really stopped directly lending to groups
that have real strategies to acquire and redevelop properties.
Another area where it has been very difficult, because it
is so difficult to qualify for mortgage financing and there is
such a demand for housing, is to provide financing to groups to
rent out these houses. In New Jersey Community Capital, we have
been trying to provide what we call mini-permanent rental
financing. Again, there is demand for affordable housing but a
lack of capital to fill houses, and this financing is a really
important component of the work. Financing is key, clearly. It
continues to be an issue.
The second program is around the acquisition of properties
on a meaningful scale. It is clear to us that the one-off
property acquisition is not enough to really save
neighborhoods. Not only is it not enough, we cannot rely on
Government subsidy as the sole source to rebuild neighborhoods.
So one of the initiatives that we have developed in New Jersey
Community Capital is to establish a subsidiary called Community
Asset Preservation Corporation which is designed to purchase in
bulk both nonperforming mortgages and REO properties and then
work with various groups, both community development groups and
mission-based for-profit groups, to try to keep people in their
homes through modifications of mortgages, trying to stabilize
tenant situations. We really feel that this is a promising
aspect of the work.
One of the difficulties and challenges that we have had,
and we are starting to make more progress on it, is getting the
financial institutions to deal with us on a meaningful basis to
acquire properties and to establish rational values for these
properties. We really believe that early intervention is so
important, and if the financial institutions were more willing
to work with us, we would be able to gain control and access to
these properties more quickly.
And finally, Senator, we are working on a program with our
State housing mortgage finance agency to use some of the
Hardest Hit Funds. We are using some Hardest Hit Funds that
were provided by U.S. Treasury. And the idea behind this
program is precisely part of your work plan about helping
underwater home buyers and keeping people in the homes. Every
week in this country, every single week, billions of dollars of
mortgages are traded, including here in New Jersey. And so we
want to create a fund that is designed to acquire owner-
occupied mortgages in targeted neighborhoods and then begin a
process of working with the individual homeowners, like with
our counselors like Krishna and Phyllis, to redevelop
individual program plans so that we can meaningfully write down
these mortgages to a point where they are consistent with the
values of the house and with the borrower's income.
We believe that with this program, we could probably save
2,000 homeowners over the next 6 years. So we are looking
forward to continuing to develop that program and implement it
in 2012.
Senator, again, thank you for this opportunity here today
to speak with you. It is critical that we save our
neighborhoods from the detrimental impact of foreclosures. I
believe that we can make more of a difference, but it is going
to require both a financial and real estate capacity at a
greater scale than has ever existed, and it is also going to
require a major shift in thinking and behavior by all of us to
really implement these initiatives. So thank you again.
Senator Menendez. Thank you for the insights.
Ms. Salowe-Kaye.
STATEMENT OF PHYLLIS SALOWE-KAYE, EXECUTIVE DIRECTOR, NEW
JERSEY CITIZEN ACTION, AND FORMER MEMBER, CONSUMER ADVISORY
COUNCIL, FEDERAL RESERVE BOARD OF GOVERNORS
Ms. Salowe-Kaye. I would like to thank Senator Menendez for
bringing Congress to Plainfield, New Jersey, today. I have been
the Executive Director of New Jersey Citizen Action for the
past 25 years and I served as a board member of the Federal
Reserve's Community Advisory Council for 3 years.
New Jersey Citizen Action is the State's largest HUD-
certified housing and foreclosure counseling agency and we are
a leader in innovative projects and programs that benefit New
Jersey's families, individuals, and seniors, and the kinds of
things that Krishna talked about before, we see those cases in
our seven offices throughout the State, including the one that
is located right here in Plainfield, New Jersey.
Keeping families in their homes when reasonable loan
modifications are possible and the reform of the broken loan
servicing industry should be the number one priority for
Congress. Along with that, we need to be figuring out a way,
and Wayne talked a little bit about it, to preserve already
existing housing that has either become vacant or has the
possibility of becoming vacant. We need to find ways to keep
folks in those homes so that we can preserve our neighborhoods
in New Jersey.
Policy makers need to apply strong mandatory standards for
loan modifications. It would go a long way for the uncertainty
that counselors face when the result of a modification depends
on the person that they are talking to on the phone and the
mood they are in that day.
There must also be an end to the loan servicing abuses and
poor business practices that contribute to unnecessary
foreclosures. Do not be fooled by the AG announcement that was
announced yesterday, and announced as probably the best thing
since sliced bread. The devil is in the details. The programs
have not been set up from that. The implementation of those
programs has not been determined. And finally, the enforcement
is being left to the lenders, to the banks. It is like the fox
is guarding the chicken coop. So we really need to examine that
and not rest on our laurels that billions of dollars are
targeted to help a very, very small percentage of families and
no one is going to jail right now.
Lowering and reducing principals is also an essential part
of keeping folks in their homes, and there must be a way to
mandate that these principals be written down so that homes can
remain affordable and the mortgages can be sustainable. Senator
Menendez's program, his Shared Mortgage Appreciation
Modification Act, is an example of a program that would work,
should be supported, and it should be passed quickly by
Congress. Acume Bank is a national financial institution that
has been doing this for many years. They have 8,000 foreclosed
loans in New Jersey and they found out a way to be profitable
and do mortgage reductions. So we need to make sure that that
happens and we need to all get behind this bill and Congress
needs to pass it very quickly.
Treasury's Hardest Hit Fund has some excellent State and
local programs. New Jersey's Homekeeper Program, which provides
direct mortgage assistance to folks who are unemployed or
under-employed, really needs to be expanded and marketed
widely. Congress needs to support large-scale models like the
Resolution Fund that Wayne discussed by allowing organizations
themselves to apply for these Hardest Hit Funds or other TARP
types of dollars instead of just permitting the housing and
mortgage finance agencies to access these funds. And as long as
the Hardest Hit Funds are being recycled, as in the Mortgage
Resolution Fund, Congress should not have a sunset on these
funds. Additionally, incentives need to be set for servicers
and banks to ally themselves with these kinds of nonprofits and
the same should be provided in bulk REO programs.
Finally, HUD certified counseling agencies need to be
funded to capacity. Every single program that has been
discussed here today requires a counselor for a home buyer to
navigate this process, and to have cut these funds is
disgusting and we all have to get behind this and make sure
that funds are available to properly counsel every single
person who is facing foreclosure in New Jersey. Thank you.
Senator Menendez. Thank you very much.
Professor Mallach.
STATEMENT OF ALAN MALLACH, NON-RESIDENT SENIOR FELLOW,
BROOKINGS INSTITUTION
Mr. Mallach. Thank you, Senator, and I am delighted to be
here.
I would like to start by just seconding what Phyllis said.
The settlement may help, but again, the devil is in the
details. But I think legislation such as the bill that you have
introduced on shared equity mortgage modifications could make
far more difference in the long run that the settlement that
was announced yesterday, which could help but, again, is far
from a solution.
So I would like to talk very quickly about four things that
I think are really critical. First, and I will just second what
people have said, we need to reduce the number of homes that go
into foreclosure. Until that happens, we are not going to be
able to stabilize our neighborhoods. We are not going to be
able to stabilize our housing market. And we are not going to
be able to help the people who need that help. And I think the
Federal Government has a critical role in this area. We need
legislation to address the issue of principal reduction, to
facilitate short-sales and deeds in lieu and provide
alternatives to foreclosure.
And in that light, I think one of the ironies of this huge
situation is that Federal agencies control over half of the
mortgages in this country and the mortgages that are in
trouble, and yet consistently, FHA, Fannie, Freddie, the
Federal Housing Finance Agency have been more a part of the
problem than they have been a part of the solution, and I think
this is something where if the Administration is unable to
bring these agencies into the tent, as it were, I think
Congress should look at what actions it can take to change the
ground rules under which these agencies operate so that they
can, indeed, be part of the solution. Notably, they are not
part of the settlement that was approved yesterday.
Second, people have to be able to stay in their homes. When
homes become vacant, especially in inner-city areas, they
quickly become uninhabitable. I think there is--Congress
enacted the Protecting Tenants in Foreclosure Act a little more
than 2 years ago. That was critically important, but it needs
teeth.
Along those lines, I would second, I think it was--I forget
who among this group said it--a responsible homeowner who is in
the foreclosure process but has maintained their home should
have the right to stay in that house after foreclosure as a
tenant unless there is a buyer who actually wants to move in
and occupy that house. That is a win-win for the family, for
the lender, even though they do not seem to appreciate it, and
above all, for the neighborhood. There is a bill that has been
in Congress, it was introduced by Senators Grijalva and
Kaptur--Congress members Grijalva and Kaptur, I am sorry--and
it has not gone anywhere, but I think it really should be
addressed.
Third, ensure that properties are properly maintained, both
during the foreclosure and after. New Jersey is the only State
in the country that has a State law that puts the clear
obligation on the lender that has initiated foreclosure to
maintain the property during the foreclosure process. There are
a number of cities that have done it elsewhere under their home
rule powers, but I think this is something, again, Congress
could look at, making it very clear that lenders that initiate
foreclosure have the legal obligation to maintain those
properties if the owners are no longer available or accessible.
And second, throughout this country, particularly in inner-
city areas, lenders initiate foreclosures and do not follow up
or drag it out. In many States, in many cities, lenders,
literally, they start the foreclosure, they hope to pick up
some money from the borrower at the last minute, and then they
walk away and never perfect the foreclosure. We need
legislation that is essentially a ``use it or lose it'' bill.
If a lender simply starts the foreclosure but does not pursue
it responsibly in a timely fashion, the foreclosure should be
voided and, in some fashion, either the owner should be allowed
to stay as the owner or the responsibility for foreclosing
should go to a nonprofit or a public agency that can do it
responsibly and get that property out of the limbo that it is
sitting.
Then, finally, we need to put more properties back to
productive use and make sure there are ways for families to buy
houses, that there is access to mortgage funds. This, of
course, goes to a huge issue that Congress is dealing with, is
what is the future of the American mortgage industry going to
look like. Are we going to have a situation in this country
going forward where responsible home buyers of all income
groups will be able to get mortgages, or are we going to have a
situation where mortgages, unreasonable terms with unreasonable
downpayments, are simply no longer going to be available to
people of low, moderate, and middle income.
And then finally, just above all, I think this is a crisis.
I mean, I have spent a lot of time traveling around New Jersey
and around the country, in cities, in urban areas. There are
neighborhoods across this country that are falling apart, that
are collapsing from foreclosures, market collapse, declining
public services, the economy. If we do not do something and do
something quickly to deal with these issues, one harvest of our
inaction will be the collapse and abandonment and
impoverishment of literally hundreds of inner-city
neighborhoods and hundreds of thousands of lower-income
families.
Thank you.
Senator Menendez. Thank you very much. Thank you all for
your testimony. There were a lot of great insights here and I
want to follow up on several of them.
Assemblyman, you talked about--and I do not want to get
into your negotiations--but what is the hope of your goal at
the end of the day in terms of the legislation that you and
Senator Lesniak are pursuing in broad terms? Do you think that
the amount of monies that will be coming under the settlement
to New Jersey can be a source for some of what you earlier said
you wanted to accomplish?
Mr. Green. Senator, I think that would go a long way toward
strengthening the pot. As you know, over the last 25 years and
basically this last 2 years under Christie's administration, we
all have agreed that housing policy in the State of New Jersey
needs to be changed. Currently, I have a bill that has the
support of all the people in the building industry, the
nonprofits, in terms of how we can answer that. Unfortunately,
the Governor has another idea. So I am hoping that maybe we can
meet each other halfway rather than have the court tell us what
to do.
Meanwhile, in this last 2 years, the crisis of foreclosure
has come up, and what we are trying to put together, without
getting too far into the negotiations that are going on, is
that some of these dollars that are actually sitting in
suburban communities that can be used, not for affordable
housing now, for foreclosure, and some of the other dollars
that are generated through the ability of builders and other
entities bringing money to the State, we take that money and
use that for foreclosure.
Right now, Senator, foreclosure is at the front and the
bottom line is that we cannot continuously go back to
Washington because you are doing the best you can. We cannot go
back to the taxpayers. So any dollars that we can generate that
can go toward helping a family, helping a bank, we need to make
that our top rod.
There are going to be people in the building industry who
we would like to put back to work. We are going to have people
in the community that feel we need to be building more units.
But you need to deal with your current crisis, and that is the
crisis that you are talking about today.
Senator Menendez. And in that respect, Ms. Salowe-Kaye
mentioned the New Jersey Homekeeper Program, which is based on
Federal dollars. Has the State committee had an opportunity to
have any hearings on that yet?
Mr. Green. No, we have not. The hearings that I held last
year, Senator, were basically dealing with affordable housing.
Senator Menendez. I see.
Mr. Green. We are hoping that the different groups that we
have met with without having hearings, including groups of her
sort, you know, my House, the Senate, has reached out for them.
So in the past, I was able to reach out for everyone when I was
moving my bill, but unfortunately, it did not happen with the
front office. But the question you are asking me is that we are
reaching out now before we finalize this so everybody can be on
the same page.
Senator Menendez. Ms. Salowe-Kaye, I want to ask you about
that program because I am a little disappointed that, so far,
only 54 homeowners----
Ms. Salowe-Kaye. A slow start. I think as a--well, it was
even less last year, so we are better now than we were last
year. As a result of Krishna's counselors, my counseling staff
interacting with the Housing and Mortgage Finance Agency, they
have actually changed some of the requirements of that program
in order to be able to expand the number of people that qualify
for it. Fifty-four is not a good number. There are many, many
more applications that are in. Folks need--the way it works is
homeowners have to apply directly online at HMFA's Web site
into a portal and then they eventually get assigned to one of
our agencies or another. There are other certified agencies
here.
There is a lot of time there, but a bigger problem is the
actual marketing of the program. It was announced a couple of
years ago as we have got $48,000 for 2 years if you lost your
job. This was before the program was even set up. Now the
program is set up. There are requirements. Everybody does not
qualify. But there really needs to be aggressive marketing and
outreach on that program.
The counseling agencies are being inundated by people who
have applied and then get sent to us. It is what happens after
that when we submit it, which takes a long time, and how many
counselors there are to put through all the people that should
qualify. We do not market the program, because if we marketed--
I mean, we do not have to market the program because we do not
have enough counselors to serve the people that are coming
through now.
So they need to market it, provide counselors----
Senator Menendez. So if we marketed it and had a lot more
influx, how would we meet the challenge of----
Ms. Salowe-Kaye. At least people would get into the portal
and they would get into the queue and they would eventually get
seen by one of our agencies that are up here and out there
today. But a lot of people do not even know that it exists, and
some people come to us first or your agency first and they
think we can get them in. So the State really needs to market
it. They need to increase the number.
I mean, we used to--in the old days--we now are all paid by
a fee-for-service. For every one you put in, you get this,
that, $100 here for an intake. We used to get capacity grants
that actually paid us money for counselors. We have had to
let--we do not get that anymore. All we get is a fee for
everyone we put in at each part.
So unless somebody is--this money, the hope would be that
some of this white bread money, you know--sliced bread money,
not white bread money--you know, we are going to get a bunch in
the State. There are a lot of places that it should go to and a
lot of programs. But some of it has to be put into actual
capacity building of the already existing counseling agencies,
not setting up new agencies. We do not need any more new
agencies. We have tried and true agencies that work. We need to
be able to maintain our staff and deal with what is going to
come. We have not peaked yet.
Senator Menendez. I agree with you on that, which is why we
fought the House provisions that eliminated all the funding and
got a fair amount restored----
Ms. Salowe-Kaye. But the State used to fund this, too.
Senator Menendez.----but we need to do more.
I just want to make sure that, after having fought at a
Federal level for the equivalent of what we call here the New
Jersey Homekeeper Program----
Ms. Salowe-Kaye. A great program.
Senator Menendez.----that it is--I am glad to hear it
works, if we can get it working----
Ms. Salowe-Kaye. It works if we can move people through,
and it works as a result of the counselors saying----
Senator Menendez.----so something we need to pay attention
on. Maybe the Assemblyman can help us with that, too.
Mr. Green. With all due respect, Senator, this last 2
years, as you well know, the Department of Community Affairs
has changed hands. We now have a new Commissioner.
Unfortunately, the other Commissioner was setting everything up
and this is like starting all over again. I feel that you need
to put some safeguards in when Federal dollars are sent to New
Jersey that those dollars go directly to where they need to go,
and number two, we have the staff to make sure the job is
getting done because that is the problem we are running into,
exactly what she is telling you today. It just seems like it is
not on----
Senator Menendez. Well, I know I wrote several letters to
the New Jersey Housing and Mortgage Finance Agency saying you
have the slowest start in the Nation, so we need to get it
going, because we fight for Federal dollars and then we want to
see it effectively used here on behalf of people. So I hear
some of your suggestions and am going to follow up on it.
Ms. Garlic, I heard your story, which is, of course, of one
of your clients, which is pretty telling of the challenges. It
is your experience--she did not end up with a successful
modification, but is it your experience that when you have a
mortgage counselor with a client, they are more likely to
succeed than not? Would that be true?
Ms. Garlic. No, that would definitely be true, and I think
kind of the message in this story is that, emotionally, going
through foreclosure is a very stressful time for a homeowner.
And so when the banks are taking a very long time to make a
decision regarding a modification, and if you go through the
90-day trial and then the additional time to wait and then all
of the programs that we have in place and the time it takes for
people to be able to move through these programs, that there
are a number of people who will end up with a successful
modification, but then there are a number of people who have to
look at alternatives. And the counseling agency does not walk
away from a person if a loan modification is not what happens
at the end of the day. We will stay with someone all the way
through whatever their transition is.
And so when we talk about being fairly compensated for the
work we do, you know, that is a part of the work that we are
not compensated for. It is something--when you talk about being
able to really support us from an organizational perspective
and be able to support the folks that we are paying, we are
there with the person through the entire crisis, whatever that
means, and we need to be able to be supportive for that work.
Senator Menendez. One of the suggestions you have that is
of interest to me, that the counselor have direct access to the
lender. Can a borrower not give you some power of attorney----
Ms. Garlic. Yes----
Senator Menendez.----or some authorization to do that----
Ms. Garlic. Absolutely.
Senator Menendez.----or is it still an impediment?
Ms. Garlic. So, really, what the problem is is that the
person who the counselor may be speaking to on the phone is not
the person who is going to make the decision about whether that
loan modification is approved or not. And so you spend your
time, or the counselor spends their time on the phone, and I
think Phyllis said, what mood is the person in today? How are
you going to apply the guidelines today? And so really wanting
to be able to have access to someone who is going to make the
final decision.
Senator Menendez. Phyllis.
Ms. Salowe-Kaye. The thing about that is the counselors, at
a counseling HUD agency, we all have the secret super-duper
numbers that the person in the street does not have.
Ms. Garlic. Right.
Ms. Salowe-Kaye. So we actually get to what they consider
to be the best--that the lender considers the best person, and
we even have people above that if it is really outrageous. If
it gets to Krishna or I as a problem, you know, we have
somebody we could pick up the phone and call.
The problem is that on the final workout, it is the
investors, because the loan has been sliced and diced so many
ways that the secret super-duper person is not the person who
signs off on the modification. They have to go back and talk to
whoever loans the loan and we never see those people. The only
time we have a connection is when we show up in a mediation in
court and the lawyer is on the telephone. So we never even see
their face.
Ms. Garlic. Right.
Ms. Salowe-Kaye. That is the process of the State mediation
program. So it is not that the lender--I mean, we have got
better numbers than somebody----
Senator Menendez. Right.
Ms. Salowe-Kaye.----who just calls those numbers that are
in the newspaper today.
Senator Menendez. So just for the record, when you are
talking about mortgages that have been aggregated, then
securitized, sold in the marketplace, and which then has all
different investors in it, and hence the slice and dicing of
that----
Ms. Garlic. Right.
Ms. Salowe-Kaye. Right, and that is the majority of the--I
mean, those are the ones that are the hard ones.
Senator Menendez. Is that, in part, why you talked about
aligning servicer standards with--servicers' incentives with
seeking remediation and----
Ms. Salowe-Kaye. Yes, and actually, you know, the President
has, just in his recent announcement, he talked about--and we
have not seen the details of it yet--sort of mandating that
those servicers, the Freddies and the Fannies and whoever else
is owning these loans, that they comply and come to the table.
But unless there are standards and that we all know it, we are
spinning our wheels because, I mean, 8 months is a short amount
of time for a client----
Ms. Garlic. Mm-hmm.
Ms. Salowe-Kaye.----and they all stay on our books----
Ms. Garlic. Right.
Ms. Salowe-Kaye.----and 936 days in New Jersey to go from
filing of a foreclosure until the sheriff comes. That is about
the average length. We are the longest in the country. And so
we have to stay with that client----
Ms. Garlic. That is right.
Ms. Salowe-Kaye.----for 936 days, unless they leave and we
cannot find them.
Senator Menendez. Mayor, I know you want to say something.
I also want you to, while you are making your comment, I want
to ask you a question as a prelude to going on to Mr. Meyer,
and that is give us a real life consequence of multiple
foreclosures in a community. What are your challenges as Mayor?
Ms. Robinson-Briggs. Thank you, and that is sort of where I
was headed, Senator. First, thank you for your bill. I also
wanted to acknowledge something that one of the panelists said
in reference to money needing for counseling. That is an
absolute true statement because people need to be apprised of
their rights, they need to understand what the process is, if
they are in foreclosure and going through foreclosure.
To your question, Senator, I can tell you that foreclosures
not only affect the household or the homeowners who are
suffering through their foreclosure, it also affects their
neighbors, because now once that property is foreclosed on,
their property more than likely is boarded up and in a
neighborhood next to houses that are not foreclosed upon. But
if those families in that block that they have a foreclosed
property there, if they want to sell their property, their
value has been diminished and so, therefore, they are probably
on the bad side of a loan. So they are trying to sell their
property and the value has gone down and the amount of money
that they would need to satisfy their loan is not going to be
available to them because of this foreclosed property right in
their block.
And then, of course, on a municipality level, if you have
foreclosures in any municipality, that brings down your tax
rateables and it also brings down many of your property values
in the city or any city throughout the State of New Jersey.
So it has been a real downfall. Foreclosures not just
affect, again, the family that is going through it, but it
affects everybody, whether you know it or not.
Senator Menendez. Has it been your experience that a
finalized foreclosed home, now with no family inside, does it
stay vacant a long time?
Ms. Robinson-Briggs. Yes. We have many vacant properties in
the community, the city of Plainfield, and that lends an
opportunity for crime, for vagrancy. In fact, I think we did
have a property in Plainfield that there was a fire for that
very reason. And I did hear reference to the fact that when
there is a foreclosure, that banks should maintain the
properties, and I would hope that they, from this point
forward, will be encouraged, please, Senator, to do so, because
we have had properties that we basically have to put liens on
and financial institutions are not upkeeping with now their
properties. So we need them to do that so that our property
values will be maintained at a certain level.
Senator Menendez. Mr. Meyer, I wanted that as a prelude to
some of your comments about acquisitions of property at scale.
There have been some suggestions at some of our hearings that
we look to create tranches of properties sold to potential
investors with an understanding that they move into a rental
prospect for a period of time. Is that something that, in your
experience, you would find desirable? If so, how should that be
structured? Do you have any ideas in that regard?
Mr. Meyer. Yes, Senator. Before I answer, if I could just
build on the Mayor's question----
Senator Menendez. Sure.
Mr. Meyer. Some of the neighborhoods where we have studied,
once the property goes through full foreclosure, they normally
sell at 60 percent of what an average median sales price would
be in a lot of these areas, so the foreclosure has a really
devastating effect in terms of pricing for a particular
neighborhood.
Senator Menendez. I guess anyone else in the neighborhood
looking at that sales price could use it as comparables to file
a tax appeal.
Mr. Meyer. That is one way to look, but it is still----
Senator Menendez. Not that I want to create that movement,
but it is a reality of a possibility.
Ms. Robinson-Briggs. Right.
Mr. Meyer. That is right. But to answer your question,
Senator, yes, we believe that a bulk acquisition of REO
properties for a rental program is a strategy that we should be
actively pursuing, because again, we see a demand for housing.
We see a demand for affordable housing, rental housing. But the
reality is that we need to get control of these properties.
I will give you an example of one we are working on. We are
in the process of acquiring roughly 40 mortgages from a major
financial institution. They are all in targeted neighborhoods.
They are nonperforming mortgages. Twenty of the people are
still in their homes, owner occupied. The pricing on these
mortgages are less than 20 cents on the dollar at this point in
time. The banks will not write down the mortgages because of
moral hazard issues, which does not make sense to me if they
are willing to sell it to us for 20 cents on the dollar.
But the reality is, if we get control of these properties,
we can not only work with the homeowners who are in there and
write down their mortgages, because we would not have to worry
about investors since we would be the owner of the mortgages.
But also, it gives us an opportunity for early intervention, to
be able to get control of these properties when they become
vacant, to be able to develop some other strategy to fill
vacant houses. But when you wait, as in New Jersey, 800 days to
go through a foreclosure crisis, nothing good happens and time
is the enemy. So that is why it is so vital to get these
properties----
Senator Menendez. Your answer gives me rise to two
questions. It seems to me that, first of all, the biggest
holder is, I think you mentioned, is the Federal Government
and, therefore, all of us as taxpayers through Fannie and
Freddie, about 50 percent of all mortgages.
Mr. Meyer. Right.
Senator Menendez. And one of my challenges, and maybe,
Professor, you want to talk about this or have a comment about
it, is I have been pushing Freddie and Fannie to, in one case,
allow refinancing to take place, because you are either going
to preserve your corpus by foreclosure or refinancing. And it
seems to me the point you just made, I do not quite understand
if you are going to foreclose and then sell at 60 percent, why
would you not readjust. Moral hazard is also for those who
created the lending products and drove people to mortgages they
should have never been. That is a moral hazard, too, in my
view.
So the question is, should we not be also having the major
institutions that are the backers of over 50 percent of all the
mortgages in the country allow refinancing to take place as one
element at the end of the day, of permitting a responsible
borrower at present rates to be able to stay in their home and
create a good foundation of a marketplace. Is that something
that is desirable?
Mr. Mallach. Absolutely. I would just like to add to
Wayne's point in terms of bulk sales, that I think I am very
comfortable if New Jersey Community Capital buys a pool of
mortgages and is responsible for those houses. I am scared as
to what might happen if Fannie and Freddie start doing bulk
sales to people who have not been thoroughly vetted as
responsible landlords and owners and are not absolutely locked
into maintaining all their properties.
I mean, we have got a lot of history in this country
already with bulk sales, of people buying distressed
properties, triaging them, cherry picking them, walking away
from thousands of properties, and ending up making
neighborhoods worse. So I think the idea of bulk sales can
work, but it can only work if it is done extraordinarily
carefully to make sure that the properties get into the right
hands on the right terms.
And along those lines, I think, to my mind--and again,
sometimes I just wonder who is doing the thinking for some of
these organizations. From a standpoint of long-term financial
stability and liquidity, for Fannie and Freddie to reduce
principal and refinance at reasonable levels makes more sense
for their long-term balance sheets than to foreclose. It may
not make more sense for their balance sheet in this year's
budget, which seems to be the only thing that is on the table,
but it makes far more sense, and again, from the standpoint of
stabilizing the housing market, keeping people in their homes,
stabilizing neighborhood property values and so forth, and it
will end up having far more positive impact.
Senator Menendez. That is one of my challenges with Mr.
DeMarco, because his idea of conservatorship is, I think,
outside of where we need to be. I am wondering if any of the
panelists who may have read this--but it is pretty remarkable
to me. NPR and ProPublica had a story that I pursued yesterday.
Maybe the reason that they are not allowing refinancing to take
place is because they have actually taken positions in the
marketplace where they, in fact, are betting that their owners,
their homeowners and their borrowers, are going to be stuck in
the higher interest rates.
It boggles the imagination why you would make an investment
decision that you can affect the outcome of and not want that
decision to pay off. Why would you make a bet that you do not
want to pay and, therefore, very well affect your policy
decisions, which would, therefore, be to let us not allow them
to refinance because I bet that they will be more likely to be
in the higher interest rates than a refinance rate. Why would I
not want my bet to pay off? Am I missing something there?
Mr. Mallach. It is unbelievable. I would just add along
similar lines that the lawsuit that DeMarco brought against the
city of Chicago, which enacted an ordinance holding lenders
liable to maintain properties during foreclosure, the lawsuit
was brought saying that, in their judgment, Fannie and Freddie
have no legal obligation to comply with local ordinances
requiring them to take responsibilities for their properties.
Now, it is conceivable that he may be right on the law,
that it is preempted by Federal law. But it is appalling from a
policy standpoint that the Federal Government would take the
position that they have no obligation to maintain the
properties which they are legally responsible for.
Senator Menendez. I agree. Let me go back to Mr. Meyer a
moment, then I see the Assemblyman wants to say something.
Going back to Professor Mallach's question, which I have
raised, as well, in terms of putting tranches of properties
together to get the REO moved and get people for affordable
housing rental and also remove that element of the housing
market so you might get some upward mobility, it is important
that the conditions of how that is done, because working with
organizations like yours or Brand New Day or Citizen Action,
that brings a certain reality of community-based understanding
of the properties involved. But if it is just done strictly on
an investor basis without those connections, is that not a
challenge?
Mr. Meyer. It very much is, Senator, and that is one of the
things with the model that we have developed through the
Community Asset Preservation Corporation, is to try to acquire
these properties in bulk and then develop different exit
strategies, as appropriate, and the primary one is to work with
our community development partners and to work with
municipalities, and in certain cases work with mission-based
for-profits that we have vetted that we feel that they are
aligned to the work that we have been able to do. And we have
done that in some of the work that we have done before.
And the other part, Senator, which I think is really
important and I cannot stress it enough, is that with dwindling
public resources available, with housing production subsidies
going down, it is vitally important that we figure out ways
that we can gain positions in these properties to still be able
to achieve our goals of decent housing and neighborhood
stability. And by being able to purchase properties, in bulk,
on a meaningful scale, in which you achieve a certain amount of
discount, a certain level of price adjustment, it serves almost
as an acquisition subsidy that allows you to develop these
different exit strategies without the heavy use of Government
subsidy.
So that is why we think it is an important opportunity, as
this program is designed to do that, that it be taken into
consideration and to work with organizations like New Jersey
Community Capital, Brand New Day, New Jersey Citizen Action.
Senator Menendez. Mm-hmm.
Mr. Meyer. If I can just add one other point to your point
about DeMarco, I had heard the same thing, and when I was
talking to somebody about it, they said, well, the Federal
Housing Finance Agency, as the conservator of Fannie and
Freddie, has to maximize value to the Government. And I found
that to be astonishing that they would, in essence, bet against
their own portfolio. But I think it speaks to the challenge of
being able to engage with them and meaningfully write down
programs.
The Homekeeper Program is a tremendous program for the
unemployed and the under-employed, but the reality is that in a
lot of these neighborhoods--a lot of them--50 or 60 percent of
the houses are underwater, and the amount of their values are
140 percent of the mortgages. I mean, that is not close. So you
need to write down these mortgages if we are going to have any
chance to be able to do that.
So I think from a policy standpoint, I still believe that
we have to come to that realization in a lot of these ways here
if we are going to really start turning the corner on this
problem.
Senator Menendez. I agree that it is the role of the
conservator to try to preserve as much of the Federal money
that exists, but if you are going to, at the end of the day, by
taking a view that refinancing is not an option, then you are
going to end up with more foreclosures, and if they are going
to sell it to you for 60 percent of original value, that is a
dramatic drop in the conservator's portfolio, as well. Would it
not be better to refinance, have a responsible borrower, keep,
maybe even join, have the conservator join in shared
appreciation mortgages maybe so that the Federal output is
further preserved?
It seems to me that taking the view--and this is where I do
not know if I am missing something--but taking the view that
only--that conservatorship and preserving the largest corpus of
the Federal investment can only come by either payment or
foreclosure misses a tremendous opportunity to preserve----
Mr. Meyer. Senator, I totally agree with you.
Senator Menendez. OK.
Mr. Meyer. I think you are so right about that. And I will
give you a real life example here in New Jersey. We were
working with one of the GSEs. We put an offer in to purchase 29
properties in a very specific neighborhood. We could not come
to agreement with them on the final price and we ended up
purchasing 10 of the 29. We said to them, listen, what is going
to happen here is these properties are not going to move in any
event. So a couple of months later, they dropped in price, back
to the price where we had offered to them. As they start
putting more houses on the inventory, they have to put them at
a lower value because those houses dropped and the cycle
continues.
So to me, sometimes some rational pricing where they can
move properties to an organization, a re-use strategy, benefits
them in the long run, because when the next houses they have to
put on that particular market come out to play, there is at
least some momentum or at least some intervention going on that
can help stabilize the neighborhoods.
But it is crazy to me to hold property out and keep
dropping prices when you could have sold them a couple of
months earlier and still achieved the same price.
Senator Menendez. You mentioned financing as a challenge. I
know that one of the things that we did in the Small Business
Act, although it is meant for different purposes, is I have a
billion-dollar set-aside for full faith and credit of the
United States for CDFIs. What would you envision the type of
help necessary on the financing side, or what conditions would
you need to see taking those tranches of property and having
responsibly placed back in the marketplace----
Mr. Meyer. Senator, your work on that has been nothing
short of outstanding. I really mean that. It is a game changer
for CDFIs, that particular bill, and I can give you a couple of
very clear examples of what we think we would do with that type
of money.
The first is that it would give us an opportunity to
develop some patient capital that we can use to acquire these
properties in bulk and then put financing on them to rent them
to people for a number of years, because there is a clear,
clear gap in terms of our ability to do that. That is number
one, and I think that that is a huge opportunity.
I think, second, with regard to working with, for example,
the Mortgage Resolution Fund, as we acquire properties and we
reset the mortgage, we have to find a permanent financing
vehicle for them. I could very easily imagine how the CDFI
Fund, the bond program, could serve as that alternative
financing where we would actually acquire some of those
mortgages until they become stabilized and have gone through
modification periods and then find an exit strategy for them.
So those are just two examples, Senator, that I really
believe would go a long way in terms of helping with this
housing problem.
Senator Menendez. Assemblyman, do you want to----
Mr. Green. Yes. I just want to follow up on that issue
pertaining to putting packages together and allowing the
financial institutions to gain control. I know during the
course of my career in the last 30 years, I have been able to
see how this hurts the community rather than help the
community. So I would be against any financial institution
packaging and being able to give lump sums of property for them
to control. As we all know--well, I cannot say all of us
remember in the 1980s when you were paying almost 17 percent
for money. Well, that was a reason why you were paying 17
percent, because of the fact that the financial institutions
were basically in control.
And I do not want them, Senator, to get back into that kind
of control because I was blessed enough to be advisor to one of
the banks here in Central Jersey, and within 10 years, they
have gone from, we are not going to invest in urban
communities, we do not see a future. Now, all at once, they
want to do more than finance refrigerated cars. They want to
finance in the community because they see a future.
And they used to use the word ``landbanking.'' Now, I use
the word ``housebanking,'' because of the fact that with all of
these different programs, with the ability for the Government
to step in, it is going to come back. But I want it to come
back in a way where organizations that are next to me are in
control of it and not the banking institutions who basically
control the market in terms of what the community basically can
look like in terms of putting dollars in that community. Once
you give that control to them, then it is like anything else.
They make a fortune for 20 years, then we have a downsize like
we had for the last 3 or 4 years.
So when we start talking about packaging housing together,
then I am confident that I would support any nonprofit
organization being in control of that. But to give this back to
the banking industry, who I consider the moneymakers, it would
be devastating. Their record so far has proven to me this is
all about making money, even what is going on right now. This
is all about a handful of bankers getting together and poor
people being able to be used to the point that at the end of
the day, your salary goes toward meeting your needs and paying
a mortgage, and you cannot even pay that today.
So, to me, as far as I am concerned, I have no problem with
nonprofits being in control over any type of packaging. But
once we get to the financial institution, I am hoping that you
will study that very hard to make sure that they do not control
those dollars.
Senator Menendez. Well, I appreciate your concern, and that
is why I raised the question earlier when we were talking
about, I think Professor Mallach raised the red flag and it is
one that I have raised and I think Mr. Meyer has it on tack,
that if we were to do tranches of properties with investors, it
really has to have a connection at the end of the day with
community-based entities who understand the community, know the
nature of the market, know the nature of the demand for the
housing, and can appropriately deal with it. So I think that
will be a critical part of it.
I would like to just maybe finalize, Professor, on
something you said which I would like to get your ideas for the
record. There are those who suggest that we should eliminate
Fannie and Freddie, have them dissolve and no longer have a
Federal role. If that were the case--I have my own views on
this, but I do not want to prejudice the record. So if that was
the case, what do you believe would happen?
Mr. Mallach. Well, what I believe would happen is if you
look from a straight business standpoint at the low
downpayment, long-term, fixed-rate mortgage, it does not make
sense. No bank--no banking system that I am aware of in the
world provides low downpayment, fixed-rate, long-term mortgages
unless there is some form of Government or quasi-Government or
some backup behind those mortgages to create a secondary market
and secure their value.
I think if we do not have Fannie and Freddie or some kind
of equivalent system, I think we will end up with a mortgage
system that simply will not serve very large parts of our
population because it will require much larger downpayments
than many people, especially moderate-income home buyers, can
afford. It will put a premium on interest rates if you want a
term that is, say, longer than 10 or 15 years. And it will be
almost entirely focused on adjustable interest rates because
the idea of locking in a fixed interest rate for a long term,
unless it is at an extremely high rate, will simply not be
attractive to the lending industry.
So I think the notion that has been raised by some people
that we can privatize the mortgage industry and that,
ultimately, the private sector will come back and offer the
same product without any need for Government intervention. It
is a pipe dream, Senator.
Senator Menendez. Well, I appreciate that, because I think
Fannie and Freddie have to be reformed, but they do not have to
be abolished.
Mr. Mallach. Reformed big time.
Senator Menendez. Yes. They followed the market and that is
not something we needed them to do. But I think that without a
Fannie or Freddie, I would have never, at the end of the day,
bought my first home, and a lot of responsible borrowers, who
are still responsible borrowers today, would never have
purchased their home.
And so I look at that and I look at the present concern
that we are having with Federal regulators considering setting
a downpayment standard of 20 percent across the board, which
the Center for Responsible Lending shows that such a role could
push 60 percent of all creditworthy borrowers out of the market
and disproportionately affect African American and Hispanic
families who can be very responsible borrowers, but not if you
insist on 20 percent down, especially in a housing market in
Northern New Jersey, for example. It would just be, I think--a
combination of eliminating Fannie and Freddie and having that
would just make it an impossibility at the end of the day.
Ms. Salowe-Kaye. Yes. I just--I want to make sure that we
leave people with the knowledge that there are lenders in New
Jersey who are making first-time mortgages to homeowners at 30-
year fixed rates with only 3 or 5 percent down with proper
counseling, and they are actually holding those mortgages in
portfolio in order to get home buyers to get those first
houses. There are not a lot of banks, but they certainly--we
have enough of that product for our clients, but that does not
diminish the need for what Alan was saying. So I want folks to
know that there are those mortgages that are long-term, 30-year
fixed rates, no points, no private mortgage insurance, that
somebody can come into a HUD counseling agency and get
information about that are 3 percent.
Senator Menendez. And I think the Professor's remarks are
that without a Fannie or Freddie, you would not have that at
scale, to the scale that exists----
Ms. Salowe-Kaye. Right. That is a problem.
Senator Menendez. Well, my thanks to all of you for some
very, very worthwhile and helpful insights. We will share this
with the rest of the Committee.
Let me bring the hearing to a close. I want to thank all of
the witnesses for their written and oral testimony, which will
continue to be part of the Congressional record.
I want to thank the Black United Fund Health and Human
Services for so generously hosting this hearing, and
particularly its President and CEO Sondra Clark for hosting us.
We appreciate it.
It seems to me that after hearing the testimony, it should
be clear that there is a great deal the Government can do
beyond what we are--where we are at to help foreclosures by
keeping people in their homes with mortgage modifications,
refinancing, by reducing the huge numbers of foreclosed
property for sale that are reducing home values, and by dealing
effectively with restoring vacant homes that are blighting
neighborhoods. If we take those steps, which I look forward to
pushing in the Senate, we can make for a much better day in
America.
Thank you all for your testimony. The record will remain
open for 1 day so that any Members who read it may, in fact,
have--or, actually, maybe until next week, until next
Wednesday, so that any Member who reads the testimony may have
any questions. If you do get a question from a colleague,
please respond to it as quickly as possible.
And with that, this hearing is adjourned.
[Applause.]
[Whereupon, at 12:31 p.m., the hearing was adjourned.]
[Prepared statements supplied for the record follow:]
PREPARED STATEMENT OF JERRY GREEN
Assemblyman and Speaker Pro Tempore
New Jersey General Assembly
February 10, 2012
Good Morning, my name is Assemblyman Jerry Green, Speaker Pro
Tempore (22nd District). We are all too well aware of the impact that
the mortgage foreclosure crisis had on families around the country and
here at home. As Chairman of Housing and Local Government, I have been
on the forefront of New Jersey's housing crisis looking for solutions
that address the housing issues faced by the people of our State.
While measures have been put in place over the last few years by
the legislature to help families struggling to pay their mortgages keep
their homes, the current economic climate is making it almost
impossible and is forcing many families to default on their mortgages.
We reportedly have more than 100,000 homeowners currently dealing with
foreclosures in New Jersey. These families, despite their financial
struggles, still need a place to live.
The crisis not only affects families, but entire communities. As
these homes are foreclosed, they become nuisances for residents,
municipalities and law enforcement.
Abandoned properties are a major problem, particularly in our urban
communities. More than unsightly, they attract trespassers and
squatters and serve as havens for drug use and sales, prostitution, and
other criminal activity. Adding insult to injury, as they erode from
neglect, they drag down the property values of other homes in the
neighborhood.
I am in the beginning stages of establishing open communication
with the Administration via legislation that will establish the ``NJ
Foreclosure Relief Corporation''. This bill provides a practical
solution for residents who have limited financial means and are in need
of affordable housing, and for communities that are dealing with the
blight, reduced property values and illegal activity that is synonymous
with vacant properties.
Interestingly, the current economic climate, despite the hardships
it has created, also presents our State with a unique opportunity to
help. This bill will take advantage of the excess of vacant foreclosed
residential properties and historically low interest rates in order to
address one of the most pervasive problems New Jersey faces, the
creation and preservation of housing for individuals and families of
limited means.
______
PREPARED STATEMENT OF SHARON ROBINSON-BRIGGS
Mayor, Plainfield, New Jersey
February 10, 2012
1. Housing Profile
Plainfield is predominantly an owner occupied city with:
43 percent of the owner occupied home values ranging from
$300K to $499,999.
32 percent the owner occupied homes purchased or
refinanced between 2005 and later.
26 percent of the owner occupied homes purchased or
refinanced between 2000 and 2004
46 percent of the owner occupied homes paying at least 35
percent of their monthly income toward housing costs.
Housing Market
Number of foreclosures 125 (source is Trulia) 604
(RealtyTrac--includes notices of default, frclsr action and
bank repossessed)
Median home value $305,700 (2010 U.S. Census).
Recent (wow) sales price increased by 9 percent (Trulia)
Demographics
50 percent Black and 40 percent of Hispanic ethnicity
(includes black and white populations).
Median income: $52,056
2. Foreclosure impacts (Center for Responsible Lending, 11.11 Report)
People:
1. African Americans and Latinos have a
higher percentage of higher-rate loans
likely to have `risky' loans
almost twice as likely to lose home through foreclosure
than whites.
2. Studies indicate that the foreclosures affect:
physical health of families
creates insecurity in children, affecting
behavior, cognitive development, academic performance
and more.
Family's financial well-being
Inability to `tap' equity for new business
Pay for higher education
Retirement
Removes cushion for unexpected hardships, including
Loss of job, divorce, medical expenses
Removes family's main ability to transfer wealth to
next generation.
Community:
When inadequately secured and maintained, foreclosed properties can
lead to increased crime, pest infestations, disorder, and violence.
Municipalities impacted by foreclosures face a troublesome combination
of decreasing property tax revenues combined with increasing costs of
responding to foreclosure-related problems.
1. Costs to neighborhood and taxpayers
Abandoned properties impact home values and weaken future
home buyer sales.
Abandoned properties create opportunities for crime.
2. Study indicates that an average of $5,400.00 is spent by a local
government to `maintain' an abandoned foreclosed property in
code compliance. (Chicago Foreclosures, Agar and Duda 2005)
The Remedy(ies)
Housing Mortgage Data Act (HMDA) data indicates that more
than 20 percent of mortgage holders in the United States owe
more on their loan than their home is worth.
Between predatory lending practices, the packaging and sale
of questionable mortgages by Wall Street and the loss of home
value, the most effective tool to relieve distressed mortgages
and prevent foreclosure is to forgive some mortgage debt owed
by struggling borrowers through ``principal reduction.''
the recent foreclosure settlement between banks, States and
the Federal Government would require the banks to pay $25
billion to participating States as a result of their failure
and omissions to execute foreclosures properly.
this agreement has far-reaching potential, because it
attacks the fundamental engine that defies an abatement to the
foreclosure crisis: exaggerated home values, beyond the amount
of the loan.
A reduction in principle translates to a reduction in
monthly mortgage payments, making the mortgage affordable and
preventing a foreclosure. It also has the potential to
Re-adjusts the housing market, potentially increasing the
volume of housing sales and their sales price.
______
PREPARED STATEMENT OF KRISHNA GARLIC
Chief Executive Officer, Brand New Day
February 10, 2012
Good afternoon,
It is with mixed emotions that I stand here to address you today to
discuss the continued foreclosure crisis in our State. I am grateful
that the Senator has made the venue available to call attention to the
unfortunate situation that families are still losing their homes and
many are sitting in limbo for years not knowing their fate.
Take for example, Regina, who came to Brand New Day early 2010 for
help with her mortgage. She had heard about the HAMP program and wanted
to see if she qualified. Her mortgage was with one of the larger
banking institutions. Her mortgage payment was $1,200 a month and she
was current in her payment until she lost her job unexpectedly. She was
unemployed for 3 months before finding employment at significantly less
than her previous job. BND worked with her to submit her modification
request. After 90 days she was approved for a trial modification and
the next 120 days were spent resubmitting documents, numerous phone
calls and lots of tears as she waited for a permanent modification. Six
months of waiting to find out the fate of her home ownership status and
the memories of sacrifices she and her husband had made to purchase a
home for their family were all flooding her with emotions. Thoughts of
where she and her family would live if her loan was not approved; where
would her children go to school, who would they play with, what
neighborhood would feel safe to raise her children. After all, she and
her husband had chosen this house, this neighborhood, and these
neighbors. Another 30 days went by before she was scheduled to meet
with her counselor at BND; it has now been over 8 months and still no
resolution. She was saddened to hear during her appointment that her
request had been denied. The counselor advised her not to give up
because there were other programs that existed in New Jersey. The
State's mediation program would give her an opportunity to speak
directly to the bank and make her case. Together with her counselor,
the mediation application was prepared and submitted. More waiting.
Regina's mediation date was scheduled for 2 months out but at least she
could sleep sound that the Sheriff would not arrive at the door to
remove her family while waiting for her day at mediation! A week before
the mediation date BND worked with Regina to update all of her
paperwork and send it to the bank in preparation for the mediation
process. Regina found herself frustrated and confused when the lender's
attorney reported to mediation unprepared and requesting that the
process be continued. On many occasions cases at mediation are
continued two and three times, leaving homeowners in their houses but
uneasy, insecure and full of anxiety. In addition, while decisions are
prolonged, fees and interests continue to accrue making negotiations
with the lender even more difficult. It is our recommendation that fees
and interest be suspended during the foreclosure modification process.
In addition, the process would be simplified and more effective if
counselors had direct access to the person who has the power to
negotiate and make the decision regarding the modification.
Regina finally decided after an unsuccessful mediation process that
she would pursue a short sale and put her house on the market. At this
point she felt hopeless and believed this was her only option. The home
stayed on the market for over 8 months with no offer. There were so
many homes on the market at that time and in her neighborhood that
demand was extremely low. She finally got an offer at much less than
what she had hoped. In fact the short sale offer was $70,000 less than
what she owed to the bank. The offer was submitted to the bank and
Regina found herself yet again playing the waiting game. She waited 3
months for an answer on the short sale before deciding to simply give
up and move on. The housing counselor at BND told Regina about ``cash
for keys'' where the bank would offer Regina cash to move out. Regina
was desperate and she and her counselor made arrangements for the
exchange. Unfortunately, the cash arrived many months after she had
moved to her new home and therefore wasn't able to use it to help with
relocation expenses. Banks should be required to give the cash within
30 days of the homeowner vacating the property.
Regina and her family are now renting an apartment in another town
and community. The children are now attending a new school and had to
make new friends. There is a greater distance between where she lives
and where she works. The family would have been better served if they
could have remained in the home as tenants. Banks should be encouraged
to allow homeowners to lease back the properties after foreclosure so
they can maintain stability for their family and avoid vacancy in our
neighborhoods.
In closing, Regina's story can be multiplied by the thousands
across the State and millions across the country. Many of the current
Federal and State programs could be more useful if the guidelines were
less restrictive. There are so many people that need help and their
situations are each different and unique however numerous work hours
are spent trying to determine what programs a person may qualify for
and in many cases trying to qualify the unqualifiable. In addition, our
counselors are an invaluable part of the process in aiding a family
from their first late payment through resolution which could be a loan
modification or transitioning into a new living situation. Funding for
housing counseling has been significantly cut in State and Federal
budgets and as demand continues and in many cases increases, we need
dollars to pay salaries and related cost. Banks should be responsible
to assist with the cost of healing our communities by paying fees for
foreclosure counseling. There has been a lot of discussion across the
State and country regarding a fee agreement however it has not
manifested in large scale corporate accountability that reaches the
local nonprofits.
I want to thank you for your attention to this important matter and
ask that you continue to have open dialogue with counseling agencies to
strategize solutions that help families like Regina's maintain the
American dream.
______
PREPARED STATEMENT OF WAYNE T. MEYER
President, New Jersey Community Capital
February 10, 2012
Senator Menendez and Members of the Subcommittee, thank you for
this opportunity to speak with you today about New Jersey Community
Capital (NJCC) and the role we play in saving New Jersey's
neighborhoods from foreclosures.
My name is Wayne Meyer. I am President of New Jersey Community
Capital, a nonprofit Community Development Financial Institution or
CDFI. New Jersey Community Capital is the only CDFI headquartered in
New Jersey which serves the entire State. Being a State-wide
organization, we gain valuable insights into the difficulties and
challenges experienced by our borrowers, mostly nonprofit community
development corporations (CDCs). Through our innovative lending
strategies, we are able to bolster the important work of these
organizations, which are trying to save and stabilize neighborhoods
ravaged by the continuing foreclosure and credit crises. Low-income
communities throughout the State are in great peril and other,
seemingly stable, low-to-moderate income communities are also on the
precipice of rapid decline. However, CDCs alone will not save our
neighborhoods and communities. This can only be done through
comprehensive, innovative and integrative initiatives which require
collaboration from every sector--Government, private, philanthropic,
nonprofit and civil.
The Problem
The foreclosure crisis is changing the landscape of many New Jersey
communities. Tens of thousands of foreclosed properties sit vacant,
creating health and safety risks for these neighborhoods, of no use to
the countless New Jerseyans seeking homes they can afford. Similarly,
hundreds of thousands of homeowners are underwater and drowning fast
with mortgages greater than the values of their homes. And with
foreclosure filings continuing to increase, this crisis has yet to run
its course.
Our Solutions
We appreciate Senator Menendez' proposed Shared Appreciation
Mortgage Modification Act and we support the Senator's advocacy for
experimenting with different approaches to disposing of foreclosed
properties.
The scale of the foreclosure problem is so large, however, that we
believe that additional strategies need to be part of the solution. In
the interest of time, allow me to highlight some of the most promising
and effective programs we have designed to date, which we feel are key
to saving our neighborhoods from foreclosures.
The CAPC Model
NJCC has a proven model that we believe can be used in regions
throughout the country. This model does not require public subsidy. We
have developed a bulk purchase strategy in which we purchase,
rehabilitate, and return foreclosed homes to productive and equitable
reuse while strengthening and revitalizing the surrounding communities.
NJCC is employing this proven model through its subsidiary, the
Community Asset Preservation Corporation (CAPC). CAPC is a statewide
nonprofit real estate organization that acquires nonperforming
residential mortgages and real-estate owned (REO) properties in
targeted New Jersey communities through discounted bulk purchase
arrangements. CAPC then returns these properties to productive use
through a combination of strategies.
CAPC first tested its model in 2008 with an innovative initiative
called Operation Neighborhood Recovery (ONR). As part of ONR, CAPC
worked with a partnering CDC to acquire a pool of 47 nonperforming
mortgages, primarily located in distressed northern New Jersey
neighborhoods, at a deep discount. The first transaction of this kind
in the Nation, ONR has successfully maintained these properties while
developing mixed-market disposition strategies that support community
stabilization goals. Since acquisition, the partner organizations have
cleared title to 44 of the properties and conveyed over 23 of the
properties to community developers for return to productive use. While
the financial success of this model was built on efficiencies of scale
and internal cross-subsidization, the goal of neighborhood
stabilization was achieved through strong partnerships with local CDCs
who were willing to purchase and rehabilitate ONR properties located
within the communities they serve.
In 2010, CAPC merged with NJCC, which was the lead funder of ONR.
As a wholly owned subsidiary of NJCC, CAPC benefits from NJCC's
statewide reach, robust balance sheet, and existing relationships with
many public, private, and nonprofit organizations. Now a statewide
organization, CAPC continues to pursue a mixed-market approach to the
acquisition and disposition of nonperforming mortgage and REO
properties. This approach relies less on public subsidy and more on
internal subsidies and efficiencies of scale to create affordable
housing. Pivotal to this approach is NJCC/CAPC's ability to provide key
real estate services that are crucial to this model. These services
include realistic transaction pricing based on local market knowledge;
experience structuring and completing bulk purchases; demonstrated
property maintenance capacity; real estate brokerage capabilities;
existing and varied partnerships that support and encourage joint
ventures; and flexible financing through NJCC, for such crucial needs
as predevelopment loans and lines of credit.
Since inception, CAPC has acquired properties through four bulk
transactions and other acquisition strategies. CAPC continues to work
with local CDCs to convey these properties and has also begun to
directly secure or rehabilitate homes.
The goal of CAPC is to successfully intervene in the reclamation
and recovery of 500-750 residential units over the next 5 years,
leveraging over $40 million in total development costs by acquiring
pools of nonperforming residential mortgage notes or foreclosed bank-
owned residential properties. The elements of CAPC's approach include
bulk purchases; a value assessment model based on costs and likely
sales of each property (exit strategy); proactive asset management;
nontraditional financing strategies; and a mixed market disposition
strategy built upon various exit options.
The specific goals of the CAPC are to:
Rapidly and at a meaningful scale acquire property that is
at some point along the foreclosure track
Preserve the assets and financial integrity of at-risk
resident homeowners
Maintain properties to preserve their value and minimize
neighborhood harm
Re-convey property to appropriate agents to be put back
into productive use in an equitable manner
Provide capacity building assistance to partner community
development organizations
The elements of the CAPC model enable thoughtful and strategic
intervention in ravaged neighborhoods. By critically analyzing the
housing stock and foreclosure data for targeted communities, CAPC is
able to identify properties which--once rehabilitated--will have an
immediate impact on the local real estate market and a stabilizing
effect for that particular block. CAPC is able to do this thanks to its
ground-up valuation methods and its collaboration with local CDCs,
which have an intimate knowledge of the area and its residents. By
developing and furthering relationships with NJCC's clients, CAPC is
able to help these clients conceptualize and actualize proficient
redevelopment projects with lasting effects.
The CAPC disposition model pools REO assets, allowing nonprofits
like NJCC and CAPC to enter into joint ventures with institutions such
as the FHFA and the Enterprises to decide how best to manage and sell
these assets. This effort can be augmented by leveraging private sector
capital, to allow for bulk acquisition of REO assets from banking
institutions and other private sellers.
It is important to note that this model does not rely on public
subsidy. The model relies on discount prices for the bulk purchase of
REO properties, due to economies of scale that result from
partnerships. Prices would be set by the market with no further
discount required. In this model, a portion of the properties would
include properties unlikely to sell for a profit as well as other
properties that may sell at a higher price, perhaps at market rate. The
economies of scale, combined with the model's mixed-market disposition
exit strategy, allow for cross-subsidization among properties in a bulk
purchase portfolio, allowing some properties to be sold or rented as
market-rate properties and others as discounted, affordable housing.
This also provides cash to allow debt to be drawn down earlier, which
helps ensure the model's financial sustainability.
The demand-side valuation model is driven by the exit strategy, a
deep understanding of local markets and a close working relationship
with other mission-based organizations. Through this model, CAPC will
group properties by key indicators such as unit type, lender, and
location, among other characteristics, and work with its local partners
to assist in determining the most viable disposition and exit strategy
for each property. No less than two exit options will be selected for
each property, including: rehabilitation and conversion to affordable
rental; rehabilitation and sale or lease-to-sale; sale of property to
nonprofit CDCs; sale of property to select for-profit, mission-based
affordable housing developers; sale of property directly into the
market (select private investors); demolition of property; and
conveyance of property to land banking.
Expanding the Model Through the Neighborhood Prosperity Fund
As an experienced CDFI and active lender for community development
projects, NJCC has witnessed the increasing shortage of accessible,
flexible capital to help meaningfully preserve and revitalize New
Jersey's neighborhoods. Insufficient liquidity and capital are
tremendous impediments to achieving neighborhood stability and change.
The foreclosure and credit crises have placed even seemingly stable
communities on the precipice of rapid decline. However, NJCC believes
those impediments can be resolved through targeted and strategic
investments in communities.
The development of the Neighborhood Prosperity Fund (NPF) by NJCC
allows us to expand the scale of our interventions by offering a
dedicated, durable, and permanent source of lending capital for:
1) acquisition and rehabilitation of foreclosed/abandoned
properties, including the bulk purchase of REO properties at
discounted prices;
2) medium-term financing for the lease or lease-purchase of
completed units that currently cannot be sold to low/moderate
income households.
The NPF provides financing for high-impact community developers to
invest in at-risk neighborhoods. These funds are recycled to
continually acquire, renovate, and place troubled properties back on
the market. The NPF provides flexible forms of capital through lines of
credit to community developers to acquire, renovate, and return to
equitable reuse houses in at-risk low- and moderate-income
neighborhoods. These dynamics are critical to the sustenance of
communities, as they become less reliant on tenuous public subsidy,
even as NPF investments generate both public and private funds that far
exceed their initial value.
Besides the severe shortage of mortgage and project financing for
community housing developers, many families lack the credit or savings
necessary to purchase a home in today's lending environment. This
creates a large backlog of homes on the market and increases the
likelihood that sponsors of Neighborhood Stabilization Program (NSP)
projects will be holding for-sale properties in their inventory far
longer than anticipated. This necessitates the provision of flexible,
affordable mini-permanent financing options for developers, which are
not readily available in the current environment. The NPF will enable
these community builders to tackle this problem of market absorption
through medium-term financing for the lease or lease-purchase of the
vacant and foreclosed structures they have placed back into equitable
reuse in neighborhoods where home ownership is not currently a viable
disposition strategy.
Even prior to the current financial crisis, mainstream financial
institutions were limiting the financing they provided to CDCs and
other nonprofit developers. Larger regional and national banks have not
had an appetite for the smaller transactions undertaken by CDC real
estate developers, while local financial institutions have often lacked
an understanding of the community development finance market. The
advent of the economic crisis further limited the number of mainstream
lenders willing to tackle this work, leaving CDFIs as the primary
source of capital for nonprofit and mission-driven developers working
in New Jersey's at-risk communities. In fact, NJCC has often been the
primary source of capital for community development projects,
particularly those that are affordable housing and NSP-related.
NJCC continues to innovate, adapting our neighborhood stabilization
initiatives to meet the current needs of distressed neighborhoods. Our
responses are designed to bring meaningful change to these localities
on a scale large enough to restore normally functioning markets. We
still believe that the strategic acquisition and redevelopment of
pivotal properties is critical to preserving and revitalizing
vulnerable urban neighborhoods. Accomplishing this, however, requires
both financial and real estate capacity at a greater scale that what
has existed to date. It also requires a major shift in thinking and
behavior by stakeholders at all levels.
The NPF funds provide financing to high-impact community developers
that demonstrate the financial and real estate capacity to implement
neighborhood planning and stabilization strategies. NJCC awards the
funds to projects that are tied in with a comprehensive, strategic plan
for long-term neighborhoods stability.
It provides flexible forms of capital through lines of credit to
these nonprofit and mission-driven developers to acquire and build/
renovate homes in low- and moderate-income neighborhoods. The fund
leverages both current and future Federal neighborhood stabilization
funding, providing financing that is flexible, cost effective and of
the magnitude and scale necessary to assist in the transformation of
neighborhoods. The NPF funds are recycled to maintain the continual
acquisition, renovation, and disposition of troubled properties.
The NPF is capable of bringing about transformative neighborhood
change and is critical to reducing the complexity, delay, and cost
associated with traditional acquisition, development and construction
lending, and to leveraging public funds. The NPF serves as an important
model for a scaled response to the foreclosure crisis and beyond and as
an effective tool for the revitalization of distressed communities that
are suffering from vacant and abandoned properties.
Helping Keep Families Out of Foreclosure-Creating a Mortgage Resolution
Fund
NJCC is working to create a mortgage resolution fund as a powerful
vehicle for foreclosure intervention and neighborhood stabilization.
This mortgage resolution fund would use a bulk purchase strategy to
acquire pools of delinquent mortgages on owner-occupied properties in
high-impact areas, and will subsequently evaluate each mortgage and
corresponding property to create an individualized action plan for each
homeowner. These plans fall into three categories: 1) the affordable
restructuring of the mortgages to preserve home ownership; 2) rent-to-
purchase options through a temporary third-party owner; or 3)
transitional support to new housing for owners who cannot sustain their
tenure in the foreseeable future.
It is our strong belief that this mortgage resolution fund would be
different from other public or private programs currently operating in
the market. It would be geographically targeted areas for bulk mortgage
note purchases to maximize its impact on neighborhood stabilization.
The program would be consumer-centered and provide direct services to
the homeowner in a holistic manner. It would offer a permanent solution
for the homeowner and the neighborhoods by permanently modifying and
reducing the loan principal upon successful completion of a trial
modification period. Since it would not be a subsidy program, we
believe it would play a critical role, given the shrinking public
sector resources available for this work.
We estimate that we would need a $100 million over 6 years in order
to create a fund capable of acquiring 2,000 owner-occupied properties.
While such a target would significantly reduce the number of families
struggling with foreclosure, it also shows how difficult and time- and
labor-intensive our combined efforts will need to be to help solve this
crisis.
Conclusion
Once again, I would like to thank the Chairman and the Members of
the Subcommittee for their time and attention to this critical issue of
saving our neighborhoods from the detrimental impact of foreclosures. I
once again would like to acknowledge Senator Menendez' leadership in
helping residents of our at-risk communities all across our State.
______
PREPARED STATEMENT OF PHYLLIS SALOWE-KAYE
Executive Director, New Jersey Citizen Action, and Former member,
Consumer Advisory Council, Federal Reserve Board of Governors
February 10, 2012
Good Morning. I'd like to thank Senator Menendez and the Committee
Members for holding these hearings today in Plainfield, New Jersey. My
name is Phyllis Salowe-Kaye. I've been the Executive Director of New
Jersey Citizen Action (NJCA) for the past twenty 5 years. I am also a
former member of the Consumer Advisory Council, constituted by the
Federal Reserve Board of Governors. As the State's largest independent
citizen watchdog coalition, New Jersey Citizen Action works to protect
and expand the rights of individuals and families and to ensure that
the needs of people--rather than the interests of those with power and
money--are served. Through education, research, organizing and outreach
our campaigns promote economic, social, racial, and political justice.
As the State's largest HUD-certified Housing and Foreclosure
Counseling agency and a leader in innovative projects and programs, I
appear before you to offer remarks about how we can save our
neighborhoods from foreclosure.
Keeping families in their homes when reasonable loan modifications
are possible, and the reform of the broken loan servicing industry
should be a priority for Congress. The Center for Responsible Lending's
Lost Ground, 2011 Report finds that 2.7 million people who received
mortgages between 2004 and 2008 have already lost their homes to
foreclosure and an additional 3.6 million households are still at
immediate, serious risk of doing so. According to Amherst Securities,
we may have a stunning 10 million more foreclosures ahead of us.
Many of these foreclosures can be prevented if policymakers stop
relying on voluntary efforts and instead require servicers to make
reasonable modifications on mortgages that have a good chance of
success.
Policymakers should apply strong, mandatory standards for loan
modifications. While States can require loan servicers to take specific
steps to avert foreclosures prior to foreclosure (``loss mitigation''),
there is an urgent need to establish national loss mitigation
standards. These standards should target appropriate levels of debt
(i.e., the debt-to-income-ratio) for eligible homeowners and bar
unreasonable fees. Some effective State-loss mitigation efforts and
future settlements and consent orders between banks and regulators
offer examples of standards that could apply to servicing nationally.
Additionally, eliminating the barriers to homeowner refinancing and
streamlining the refinancing process as outlined in S-170, the
``Helping Responsible Homeowners Act of 2011'' (Boxer/Isakson), would
allow homeowners to take advantage of our historically low interest
rates and prevent banks from refusing to refinance underwater
homeowners. This legislation must be supported and passed.
There must also be an end to the loan servicing abuses and poor
business practices that contribute to unnecessary foreclosures. Federal
regulators should prohibit common servicer abuses, including misapplied
payments, illegitimate fees, failure to pay escrowed taxes and
insurance, force-placing overpriced insurance, obstructing refinances
and modifications and improperly pursing foreclosures when at the same
time working with borrowers on loan modifications. New York's recent
laws and regulations provide a useful framework that should be
examined.
Lowering mortgage balances (principal reductions) is an essential
tool for stopping the foreclosure epidemic. Housing experts are
reaching a consensus that we need mandated principal reductions for
many underwater borrowers at imminent risk of foreclosure to stabilize
the housing market. Modifications that reduce principal and are Net
Present Value (NPV) positive to investors would enhance income streams
for investors and servicers, while keeping families in their homes and
prevent further foreclosures from flooding an already saturated housing
market. Given the high share of loans held by Fannie Mae and Freddie
Mac, the Federal Housing Agency (FHA) must permit meaningful principal
reductions on loans that are at imminent risk of foreclosure.
Shared appreciation mortgages are an excellent tool to redirect
principles that will allow mortgages to become affordable and
sustainable. Ocwen Financial Corporation, one of the country's largest
independent mortgage servicers, has adopted shared appreciation
(equity) mortgages as a creative way to do principal reductions for
homeowners for use in its Loan Modification Program. A shared
appreciation mortgage is a mortgage in which the homeowner agrees to
pay a stated percentage of the property appreciation to the lender at
the time the house is sold. In return, the lender agrees to reduce the
principal and change the interest rate of the loan to one that is below
the prevailing market rate.
Ocwen currently has about 16,000 loans in New Jersey. Eight
thousand are currently in foreclosure and the bank is aggressively
working with these homeowners to modify the loans and reduce the
principals. Ocwen is a company that is doing principal reductions
throughout the country and has found a way to make a profit. The other
large banks and servicers paused to foreclose on millions of
homeowners, should be required to modify loans and write down
principals in a similar manner. No more than 5 percent of the security
agreements (PSA's) have language that limits or prohibits principal
reductions. The others are silent except to say that whatever solution
is taken should benefit investors. This benefit to investors can be
calculated by using the NPV (net present value), which is what Ocwen
does. Ocwen has made use of principal reductions on a large scale. It
is essential to require the U.S. Treasury, SEC, OCC or whichever the
correct regulator is to issue guidance dispelling the notion that the
PSA precludes principal reduction except where explicitly stated.
It is also important to set a NPV calculation standard similar to
Ocwen's (though that might be proprietary) so that everyone is
``singing from the same score.'' If that seems to intrude on the
``rights'' of lenders or be too hard to pass, establish the standard
anyway and give borrowers the right to demand a re-evaluation using
that NPV. Senator Menendez has proposed a bill that would establish a
pilot program at Fannie Mae, Freddie Mac and FHA to offer shared
appreciation mortgage modifications to underwater or delinquent
homeowners. The ``Shared Mortgage Appreciation Modification Act of
2012'' must be supported and passed quickly to help homeowners remain
in their homes. It should be offered only in instances of foreclosure
prevention because in other contexts it can become another exotic tool
that can harm homeowners.
To get banks to agree to reduce the principal they would be
entitled to a fixed percentage of the value when prices finally
increase and the home is sold. But a cap should be established so that
the servicers can't recoup more than they write down plus some foregone
interest.
The Federal Government has established numerous programs to stop
foreclosures and save our neighborhoods. Some work, others don't. Just
last week, President Obama outlined a series of proposals to help
homeowners, including a plan requiring Congressional support that would
enable responsible homeowners who are current on their mortgages to
refinance into lower rate loans, even though their homes are
underwater. We strongly urge Congress to support this plan so that
responsible homeowners can take advantage of currently low interest
rates. This will enable them to put more money in their pockets and
make their homes more affordable.
The Treasury's Hardest Hit Fund has funded some excellent State and
local programs. New Jersey's Homekeeper Program, which provides 2 years
of funding for unemployed or underemployed homeowners, should be
expanded and heavily marketed. Congress should support nascent large
scale models like the Mortgage Resolution Fund (MRF), a public,
private, nonprofit partnership, by allowing the organizations
themselves to apply for Hardest Hit Funds or other TARP type dollars,
instead of just permitting the HFA's to access these funds. Also, as
long as the Hardest Hit Funds are being recycled as in the Mortgage
Resolution Fund, Congress should not sunset their use. Additionally,
incentives should be set for servicers and banks to ally themselves
with MRF type nonprofits (e.g., MRF and NCLR) and the same should be
provided in the bulk REO programs being initiated.
Finally, Congress should fund more HUD-certified housing counseling
and legal aid assistance for homeowners at risk of foreclosure. Studies
have shown that homeowners who receive counseling are less likely to
default on their loans. Every successful loan workout that prevents an
unnecessary foreclosure helps homeowners, their communities and our
economy as a whole.
______
PREPARED STATEMENT OF ALAN MALLACH
Non-Resident Senior Fellow, Brookings Institution
February 10, 2012
Chairman Menendez, honorable Members of the Subcommittee:
I am pleased to have this opportunity to testify before you on the
effects of foreclosures on neighborhoods in New Jersey and elsewhere in
the United States, and to suggest Federal and State legislative efforts
that should be pursued to help mitigate the foreclosure crisis and
stabilize our neighborhoods. You are hearing today from a number of
individuals who are pursuing important strategies to address this
problem. I will try to add a broad perspective on this issue, based on
my work as researcher and advocate in New Jersey and elsewhere over the
past many years.
Just as there is no one reason for the foreclosure crisis, there is
no one way in which that crisis affects neighborhoods, and no one
strategy that can be put in place to fix the problem. Furthermore, we
should not think of mitigating the foreclosure crisis, which still
rages, and stabilizing neighborhoods as separate matters: the two are
totally interwoven with one another. This is particularly true in urban
neighborhoods that are already hard-pressed by unemployment and other
ills.
As borrowers default, and foreclosure proceedings begin,
maintenance declines. Many borrowers leave their homes, or walk away
from investment properties. In New Jersey, where foreclosures can take
3 years or more, houses and small apartment buildings can sit empty for
years before title passes to the lender, deteriorating and blighting
the neighborhood. As vacant and abandoned properties increase, the
neighborhood's quality of life deteriorates, and its attractiveness to
home buyers declines. Meanwhile, with more REO properties coming on the
market, and fewer home buyers being able to qualify for mortgages, the
market further deteriorates; abandonment grows, crime may increase,
property values decline, and increasingly the only buyers are low-end
and speculative investors. Breaking this vicious cycle demands action
at all stages in the cycle.
We should focus on four distinct areas--not as separate actions or
strategies but in an integrated, comprehensive way. While many areas I
will touch on are traditionally matters of State law, the need for
consistent, overarching, national ground rules in this area is
compelling and a matter of urgent public interest. As Congress showed
when it enacted the Protecting Tenants at Foreclosure Act in 2009, it
is capable of acting to fill the gap between inadequate State laws and
what needs to be done.
First, reduce the flow of homes into foreclosure.
Until we significantly reduce the number of new foreclosures, and
the number of REO properties, neighborhood stabilization will remain a
moving target, constantly beyond our reach. For all of the many
programs and initiatives of the past few years, that goal still appears
far away. I believe the Federal Government needs to play a stronger,
more constructive role than it has in the past. Convoluted programs
that prolong the agony, short-term temporary assistance programs, and
similar efforts may help some people, but too few, too slowly. A more
aggressive, systematic approach is needed; the White Paper just issued
by the Federal Reserve Board offers a number of useful suggestions that
could be pursued in developing such an approach.
This is both an administrative and a legislative responsibility.
Federal regulators should use both carrots and sticks to encourage
greater principal reduction in mortgage modifications, facilitate short
sales and deeds in lieu, to maximize alternatives to foreclosure. The
Federal Government should provide additional support for foreclosure
counseling, and provide direction to the States to follow best
practices in designing and conducting mediation and other foreclosure
intervention programs. The Administration could lead the way through
its control over the GSEs as well as FHA, something which has yet to
happen. Congress can play a valuable role by putting constructive
pressure on the Administration to treat the GSEs and FHA not as burdens
or no more than bottom-line entities, but as powerful tools that can be
deployed to tackle the mortgage crisis; if existing statutes are an
impediment, Congress should change the ground rules the FHFA uses to
regulate the GSEs.
Second, keep people in their homes
If the foreclosure process itself is the first step in neighborhood
destabilization, the second is the extent to which it leads to houses
becoming vacant, and particularly in urban neighborhoods, abandoned, a
process that often results in houses being damaged beyond repair.
Congress took an important step in this respect in 2009 when it enacted
the Protecting Tenants at Foreclosure Act. That Act should be
revisited, first, to expand tenant protection to reflect the
protections afforded tenants under New Jersey law; and second, to find
out whether it is indeed being followed, and if necessary--as I expect
will turn out to be the case--put teeth in it to make sure. With
respect to homeowners, the goal should be to make sure that a house
that goes through foreclosure is empty for no longer than a house that
is sold in the normal course of events. Fostering more short sales and
deeds in lieu is an important step in that direction, but the next
major step should be to protect homeowners in foreclosure by allowing
responsible homeowners who have maintained their property in good
condition during the foreclosure process to remain in their homes as
tenants, paying a fair market rent, until or unless a new buyer wants
to move into the house. This should be a no-brainer. It preserves
families, helps stabilize neighborhoods, and preserves the value of the
property better than if the property is vacated after the sheriff's
sale. Representatives Grijalva and Kaptur introduced legislation that
would achieve that goal, but it remains bottled up. It should be given
a chance to work.
Third, ensure that properties are properly maintained both
during and after foreclosure
In New Jersey and many other States properties can sit vacant for
years before lenders gain title through sheriff's sale. In 2010, the
New Jersey Legislature passed a State law making lenders legally
responsible for maintaining properties that become vacant after the
initial foreclosure filing but before the sheriff's sale. I believe New
Jersey is unique in terms of State law, although some cities,
particularly in California, have passed local ordinances along similar
lines. Congress should consider legislation that would establish such
legal responsibility as a national mandate and strengthen the ability
of local governments to enforce that responsibility.
The extent to which lenders simply walk away from low-value
properties, particularly in distressed areas like Cleveland and
Detroit, has been widely recognized. In other areas, they may not walk
away, but may slow down the process to ration the flow of properties
into REO status. Both of these practices harm the families involved,
the neighborhoods and the housing market generally. Simply stated,
lenders should not be allowed to initiate foreclosures unless they are
prepared to see the process through in a timely fashion and take full
responsibility for the property. If they are unwilling to do so, they
should release the mortgage, or convey it to an entity that has the
borrower's interest at heart. While individual States could enact such
legislation, the likelihood of all 50 doing so is remote; this is
another area where Federal legislation would be valuable.
Fourth, make sure that REO and other vacant properties are
quickly put back to productive use
While high-value REO properties in strong housing markets usually
sell quickly, many REO properties elsewhere languish, some to be bought
by low-end speculators, and others to remain vacant. Meanwhile, other
properties in the same hard-hit neighborhoods are falling vacant for
many other reasons. Making sure REO properties are restored to
productive use not only requires that the lenders who control these
properties are motivated to do so, but needs a pool of responsible,
capable people ready to buy them. In some cases they could be home
buyers, in other cases responsible investors, or contractors willing to
put them back into shape, and in still others, nonprofit corporations
and CDCs.
In addition, municipalities need stronger tools, such as the
ability to create municipal land banks, to gain control of other vacant
properties and put them back to use. Such legislation has been enacted
in Michigan, Ohio and New York. In New Jersey, the Housing & Community
Development Network has helped draft a bill that has just been
introduced. The Federal Government should support such efforts, and
ensure that Federal programs are designed to work in tandem with local
land bank efforts.
Coupled with legislation to motivate lenders to complete
foreclosures and put REO properties on the market, we need programs to
make it easier and more financially feasible for people to buy
properties, either to occupy as homeowners, to rent out, or to fix up
and put back on the market in move-in condition. This demands two
things.
First and foremost, we need a system that provides access to
capital on reasonable terms for responsible individuals and businesses
ready to acquire, occupy, rent out or fix up REO and other distressed
property. In the short run, this should be clearly defined as part of
the mission of the GSEs and FHA. In the long run, we need to get away
from the rhetoric that has come to surround the question of the
Nation's future mortgage finance system, and come up with a model for a
mortgage system that appropriately balances risk management and public
policy goals. If we are to continue to provide home ownership
opportunities to hard-working Americans, Government will inevitably
have to play an important and ongoing role.
Second, in weak market areas, where the cost of fixing up houses
exceeds their market value, we need to look at incentives such as tax
credits to motivate responsible landlords, developers and contractors
to invest in those areas, to help those areas get back on their feet.
Finally, I'd like to come back to a point I made earlier. Yes,
there are many dimensions to this problem which demand different
strategies and programs, but they have to be connected, not handled--as
is too often the case today--as separate, unrelated, activities.
Moreover, many programs--housing programs as well as other public
efforts--that we do not associate with foreclosure prevention or
neighborhood stabilization affect the future of the same neighborhoods.
The Administration and Congress should take a close look at current
Federal programs--in housing and elsewhere--and asking whether the way
they are designed and their funds allocated works to sustain
neighborhoods, or whether some programs are indifferent to, or in some
cases, even inimical to the future of urban neighborhoods.
Communities need to be encouraged to develop comprehensive
strategies, to get everyone involved around the table to work together,
to make sure that foreclosure prevention, and keeping houses occupied
and maintained, and restoring vacant houses to productive use are all
part of a multifaceted effort to stabilize and reinvigorate our older
neighborhoods, towns and cities. Both Federal and State governments
should be their partners in that effort.