Tuesday, October 7, 2008

NJ Foreclosure Politics

So New Jersey is planning to add a new "tax" to the foreclosure process. Earlier this year we looked at the costs of foreclosure here. The total costs averaged to approximately $77,935 with approximately $50,000 of those costs being the responsibility of the lender. Here is an except for the expenses involved -

The pre-and post-foreclosure expenses that lenders incur include the following:
  • Loss on property/loan
  • Property maintenance
  • Appraisal
  • Legal fees
  • Lost revenue
  • Insurance
  • Marketing
  • Clean-up
Note that these costs to not include the depreciating value of the property which can be easily another 10-20% off the original value. Now the state looking to add another expense for the lender of $2000 per foreclosure. Lets take a look at an article from the Star Ledger titled Assembly panel approves bill to help struggling homeowners to review the proposal on the table -

The bill (A2517) would impose a $2,000 fee on every lender who begins foreclosure proceedings on certain mortgages considered subprime. The money generated -- estimated at $44 million by one supporter, Staci Berger of the Housing and Community Development Network of New Jersey -- would go into a revolving state fund. It would be used for grants to agencies such as Citizen Action to counsel homeowners facing foreclosure and make emergency loans to keep them in their homes.

The bill also would give homeowners facing foreclosure a six-month period to renegotiate the terms of their mortgage or find new financing.

"This bill is directed at the individual whose home is near foreclosure," said Assembly Majority Leader Bonnie Watson Coleman (D-Mercer), the sponsor. In that respect, she said, it differs from the $700 billion financial rescue plan passed last week by Congress to help financial institutions.

Robert Levy, executive director of the Mortgage Bankers Association of New Jersey, warned the bill "will not help; it will harm." By making it harder to foreclose on mortgages, he said, it will discourage lenders from making them, so someone who saves for the down payment on a traditional mortgage "won't be able to get one."

While this may lower the foreclosure rate how much will it help the big picture? Will it just push back the inevitable or will it last long enough to resolve the problems? Other states have implemented similar measures to slow down and lengthen the foreclosure process but little evidence has been produced if the outcomes are any better. The economics of the situation are diametrically opposed with the loans staying the same or increasing while house values are decreasing. The current losses are rolling over into the banking and lending arenas. Will the delay stop the inevitable or just slow the bleeding?

And here is a great comment regarding the article -

Posted by ListenUpNJ on 10/06/08 at 4:39PM

The article states:

"Assemblywoman Joan Quigley (D-Hudson) voted for the bill but urged her colleagues to expand it. As written, she said, it aids homeowners who took out risky subprime mortgages but not those who lost their jobs and could not keep up their payments on traditional mortgages."

So the people living beyond their means get covered. The poor guy that lost his job gets nothing. Hopefully someone will have the brains to fix this so the guy that lost his job is included.

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