‘Save New Jersey Homes Act of 2008’ Would Also Allow for Suspension of Foreclosure Process
TRENTON – In an effort to combat the foreclosure crisis affecting the nation, a bill sponsored by Senator Nia H. Gill which would provide protections for homeowners facing substantial mortgage interest rate increases or foreclosure was unanimously approved by the Senate Commerce Committee today.
“New Jerseyans are losing their homes at an alarming rate due to foreclosure and the home loan crisis which is going on nationwide,” said Senator Gill, D-Essex and Passaic, and Chair of the Committee. “The Legislature has an obligation to create a statutory scheme to allow protection for consumers who are struggling to live with the effects of a crisis created by the subprime lending practices of some predatory mortgage lenders. By ensuring early notification of rate increases and giving homeowners a grace period from higher payments, we can hopefully provide some relief for hard-hit families in the Garden State.”
The bill, S-1853, known as the “Save New Jersey Homes Act of 2008,” would require mortgage companies to notify borrowers at 60 and 30 days prior to the date that the interest rates on their home loans reset. These notices would include information regarding the current interest rate under the introductory terms of the mortgage, the date at which the interest rate resets, an explanation of how the reset interest rate would be calculated, and the best estimate by the creditor of the amount of the monthly payment after the reset date. The notice would also include a list of alternatives the borrower can pursue prior to the reset date, including refinancing or renegotiating with the creditor, or applying for an extension on the introductory interest rate.
“The old saying goes that knowledge is power, particularly when dealing with finances,” said Senator Gill. “Homeowners need to know, early and often, when the interest rate on their home loans is scheduled to reset, so they can prepare for higher monthly payments. The notification standards in this bill would ensure that increases in homeowners’ out-of-pocket mortgage expenses do not blindside them.”
Under the legislation, borrowers would be able to apply for an extension on the introductory mortgage interest rate, up to three years, if they could not afford the monthly mortgage payments after the interest rate resets. They would have to complete a certification of extension prior to the reset date, indicating that they do not have sufficient monthly income, after deductions for necessary living expenses, to pay the monthly payment on the post-reset mortgage, and that they agree to continue payments during the extension period of principal and interest calculated at the introductory rate. Eligible borrowers would still have to pay back the interest deferred during the extension when they sell their homes, and would forfeit the deferment of interest if the borrower fails to make regular payments during the extension.
“The stress that many people go through in owning a home is immense, and the balance between heating, energy, food, and mortgage payments is tenuous at best,” said Senator Gill. “For those in greatest need, we need a mechanism in place to freeze interest rates at the introductory level, until they can find the appropriate balance between living expenses. This bill gives homeowners a tool to make solid financial choices without having to worry how they will afford exorbitant increases in their mortgage.”
Finally, the bill would allow eligible foreclosed borrowers to obtain a three-year suspension on foreclosure proceedings on an introductory rate mortgage. Homeowners who had already exhausted their three-year extension of introductory mortgage interest rates would not be eligible for foreclosure suspension. Senator Gill noted that giving foreclosed homeowners a three-year window to straighten out their finances and pay off any costs of fees associated with foreclosure gives them a chance to avoid losing their home.
“Home ownership is the great American dream, but for families facing foreclosure, that dream can be perverted into a nightmare,” said Senator Gill. “Many homeowners in New Jersey are one major financial crisis – be it unforeseen health expenses, or rising fuel prices – ahead of disaster. By giving foreclosed homeowners a window of opportunity to get back on track, we can hopefully keep people in their homes, rather than face eviction.”
The bill now heads to the full Senate for consideration.