TRENTON – Senator Ronald L. Rice today said that the number residents who are losing their homes because of higher mortgage payments has reached an epidemic proportion and he plans to introduce a measure to re-finance these subprime mortgages for borrowers who can no longer afford their rising interest rates.
“Many of my neighbors face real financial peril because of rising interest rates and changes to the housing market,” said Senator Rice, D-Essex. “More people are making late mortgage payments, missing payments altogether and going into foreclosure. People all over the State are falling victim to rising interest rates, especially in my district. New Jersey’s reliance on subprime mortgages is increasing the state’s real-estate downturn and causing an increase in mortgage delinquencies. I saw this trouble brewing years ago, and am deeply concerned that the impact will expand beyond homeowners and negatively affect even renters,” added Senator Rice. “It’s my goal to quickly introduce and get signed into law a bill to assist New Jersey families who are facing foreclosure.”
Senator Rice noted that a subprime loan is usually provided to borrowers with low credit scores who are often minorities and urban homeowners.
According to Senator Rice, “In the past, lenders required subprime borrowers to make large down payments and carefully document their income to make up for their poor credit but as competition heated up, many lenders lowered or eliminated these requirements, and some even let subprime borrowers make interest-only payments. The mortgage rate is often fixed for a few years, and then becomes adjustable. The hope is that the credit scores of borrowers will then be higher and they can refinance into a traditional loan,” added Senator Rice.
Senator Rice’s measure would mirror a program already in place in Ohio.
According to Senator Rice, his measure would allow the State Housing and Mortgage Finance Agency (HMFA) to create a refinancing program that would offer a 30 year fixed-rate loan. The HMFA would also look to create a refinancing program that would offer a 20 year fixed- rate second mortgage option at an amount four percent of the appraised value of the home. The second mortgage could me used to help pay off the first mortgage, late fees, and attorney fees, added Senator Rice.
Senator Rice stated that Ohio’s HMFA plans on issuing $100 million in taxable bonds next month to help refinance approximately 1,000 loans at a fixed rate of about 6.75 percent for homeowners with poor credit history.
“This would not be a free ride for those who are facing foreclosure,” said Senator Rice. “I want to make certain that we educate New Jersey homebuyers so that they will avoid making decisions that could cause a foreclosure in the future.”
Senator Rice noted that “In order to ensure that the program helps the low to moderate-income residents, Ohio’s HMFA refinancing program does not impose limits on the loan amount, but that homeowners’ incomes can not exceed 125 percent of the areas median gross income to qualify. Rhode Island, Massachusetts and Virginia are also working on similar programs.”
According to Senator Rice, The program in Ohio requires that borrower reside in the home, and he said there is also no minimum credit score requirement.