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Saturday, August 4, 2012

Revised Foreclosure Bill Aims To Wreck New Jersey Housing Market

The war on New Jersey homeowners has resumed.  The home in foreclosure next door may be turned into a very-low-income housing project using federal and state grant money, while your state elected officials can play crony capitalism and give huge favors to "no more than two" special housing redevelopment companies.  Home values will be destroyed, while the connected insiders get rich and Democrats can get votes from the poor in exchange for deeply-discounted housing -- all at the expense of hapless homeowners. And no one may be more responsible than New Jersey Governor Chris Christie (RINO-Mendham).

Advocates like Americans For Prosperity and the independent think tank Financial Policy Council helped get bipartisan opposition to the Residential Foreclosure Transformation Act (old Senate bill 1566, Assembly bill 2168) in June.  That bill threatened New Jersey homeowners with homeless shelters, halfways houses and drug rehab centers for neighbors, and imminent home value destruction. 

If you think Christie is siding with homeowners, look closer!  Christie vetoed the first bill, but notably declared the veto to be on budgetary grounds and not on policy grounds.  With what may be stealth encouragement from Christie -- a Machiavellian signal not uncommon in New Jersey -- New Jersey affordable housing advocates have submitted a revised foreclosure relief bill (now, Senate bill 2157). The new bill (a/k/a Foreclosure Transformation 2.0) would allow the state to purchase homes out of foreclosure and turn them into deed-restricted affordable housing for households making less than 80 percent of the median household income in New Jersey. This means the foreclosure next door can be turned into low-income housing, and being deed-restricted, will remain low-income housing. 

How bad is the foreclosure situation in New Jersey? Hard facts are hard to come by. But check out these statements from real estate analyst Keith Jurow about the sheer volume of defaults and delinquencies across the river in New York City and Long Island. Jurow cites figures reported by banks to New York State.  Why should New Jersey be any different?
 
I TOLD YOU THIS WOULD HAPPEN. On June 29th I predicted the foreclosure bill, in a different form, would be re-submitted.  The particular reason I cited was that New Jersey Governor Chris Christie explained his veto as being on budgetary grounds, but given the opportunity to criticize it on policy grounds this Governor -- who does not hold his tongue when he is confronted on Jersey Shore boardwalks -- chose to say absolutely nothing.  That silence was, I argue, the covert encouragement, the Machiavellian signal, to the original bill's sponsors to try again on foreclosure transformation.

Christie's stealth war on New Jersey homeowners -- the people who should be his political base -- continues.  Now, Christie should not hesitate to declare this revised bill (sponsored by Democratic State Senator Ray Lesniak of Union, who also sponsored the original bill) dead on arrival...and if he doesn't do that, he is signaling that he will risk the real estate wealth destruction of New Jersey homeowners. 

Why Christie would take sides with legislators who want to exploit liberal white guilt as an opportunity to get votes paid for by homeowners' remaining home equity is a mystery explained only by political ambition -- a desire to get reelected by any means possible -- or, frankly, the existence of a secret and the continued need to maintain its secrecy.

How bad is the new bill?  To be frank, it is much worse than the original.  While there is one improvement, in that the new bill does not allow for conversion of these properties for social services uses (a leading objection to the first bill), do not get fooled.  The new bill is worse, and the "devil is in the details." 

The new bill still requires conversion of properties bought and re-sold by the state into deed-restricted housing for "qualifying households." The way the new bill defines this term is troubling. Here's the definition:
  
"Qualifying household" means a very-low, low-, or moderate-income household, the head of which certifies in writing that the household intends to occupy the property as a principal residence for at least 12 months. (Emphasis added.)

This means that the state can turn around and sell or rent the house or apartment next door to you, at high subsidies that you pay for, to low and moderate-income families who only have to give their word that they intend to stay there for just one year. Signing a one-year lease will be enough. They can stop paying rent after one month and they're still fine under this definition. This means your new neighbors will be transients. Tumbleweeds. Deadbeats. Residents who won't stick around and who likely will be bad neighbors. Homeowners know this will crash the value of their homes.

Now, this is not to say that most people on welfare or receiving Section 8 housing vouchers are bad neighbors or bad people. However, when all people are entitled to free or heavily-subsidized housing, you can have "the worst element" be your neighbor. You can and do have some of the worst neighbors in housing projects, because there is no place else to put this worst element when they won't pay for their own housing. The proof in the pudding comes from former tenants of housing projects, who themselves won't hesitate to move out at the first opportunity.

Who gets harmed? All homeowners, but as I previously wrote about the original bill, the Foreclosure Transformation Act will have a particularly pernicious, discriminatory effect on middle-class, working-class and low-income homeowners who are more likely to be members of minority groups.  This bill is sure to have the same discriminatory effect, and that effect is sufficient for a court challenge under federal law.

The bill defines the income brackets as follows: 
"Low-income" means 50 percent or less of the median gross household income for households of the same size within the housing region in which the household is located, based upon the United States Department of Housing and Urban Development’s (HUD) Section 8 Income Limits (uncapped) averaged across counties for the housing region.

"Low-income housing" means housing affordable, according to United States Department of Housing and Urban Development or other recognized standards for home ownership and rental costs, and occupied or reserved for occupancy by households with a gross household income equal to 50 percent or less of the median gross household income for households of the same size within the housing region in which the housing is located.  

"Moderate-income" means more than 50 percent but less than 80 percent of the median gross household income for households of the same size within the housing region in which the household is located, based upon the United States Department of Housing and Urban Development's (HUD’s) Section 8 Income Limits (uncapped) averaged across counties for the housing region.

"Moderate-income housing" means housing affordable, according to United States Department of Housing and Urban Development or other recognized standards for home ownership and rental costs, and occupied or reserved for occupancy by households with a gross household income equal to more than 50 percent but less than 80 percent of the median gross household income for households of the same size within the housing region in which the housing is located.

"Very-low-income" means 30 percent or less of the median gross household income for households of the same size within the housing region in which the household is located, based upon the United States Department of Housing and Urban Development’s (HUD) Section 8 Income Limits (uncapped) averaged across counties for the housing region.

"Very-low-income housing" means housing affordable to, according to United States Department of Housing and Urban Development or other recognized standards for home ownership and rental costs, and occupied by, or reserved for occupancy by, households with a gross household income equal to 30 percent or less of the median gross household income for households of the same size within the housing region in which the housing is located.
Who gets to do the redevelopment of foreclosed homes? So-called "qualified community development financial institutions" which have at least $50 million in assets under management and a minimum of two years' experience in the financing and acquisition of real estate for affordable housing.  That's right, just two years' experience.  Nothing is said about any success benchmark. We could have some real dodgy community groups as the new landlords of transient poor renters, living down the block from you. Again, a recipe for destroying the value of your home.

Somehow, I see Van Jones -- my former law school classmate, Obama's green housing czar and an unreconstructed Marxist race-baiter -- coming to New Jersey as our housing czar.

Even worse, the new bill imposes the 30-year deed restriction on all properties purchased by municipalities which exercise their right of first refusal under the bill. This means that towns cannot step in and buy up foreclosures to prevent their transformation into affordable housing.

The very concept of affordable housing is an oxymoron. As I wrote earlier this summer, the concept of affordable housing is wrong.  The New Jersey Legislature will make a huge error by creating affordable housing, and doing so by destroying the value of all other real estate.

Eric Dixon is an attorney licensed in New York and New Jersey.  Mr. Dixon is on the board of directors of the Financial Policy Council and represents numerous business and politcal clients on legal, regulatory and strategic matters.

1 comment:

  1. Thanks Eric ... sharing this and forwarding to the troops ... getting tired of having to rein in this RINO.

    ReplyDelete