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Wednesday, August 7, 2013
Jersey Shore Is Inflating Home Prices With Government Ripoff
Under the guise of Sandy relief, the State of New Jersey has started taking applications for low and middle-income homebuyers to get up to $50,000 in interest-free forgivable loans to buy perfectly good real estate anywhere in counties which sustained storm damage from last year's Hurricane Sandy.
The state will use up to $25 million in federal funds it recently received for Sandy relief and repair. The money will be used to issue second, or subordinate, mortgages on homes anywhere in Atlantic, Bergen, Cape May, Essex, Hudson, Middlesex, Monmouth, Ocean and Union counties. This means that if you're poor enough (keep reading), you can buy low-priced property anywhere in a county touching the ocean or one of the flooded rivers (think the Raritan or Passaic Rivers) and get a really good deal. That property doesn't have to be storm-damaged; it can be on top of the Palisades cliffs or another hilly section miles from any flood zone!
And guess what? You get to have your neighbors pay for it! And there's more --
You do not even have to be a victim of Hurricane Sandy! You don't have to have lost your home or rental apartment. You don't have to have lost furnishings. You just have to meet the income levels and other requirements.
To qualify, a prospective homebuyer must have an income no greater than 80% of the applicable area median income, a credit score of at least 620 and otherwise qualify for the first mortgage. The state forgivable mortgage would be a second lien on the property but would be forgiven entirely if the borrower uses the property as his or her primary residence for five years after purchase.
What this means is the state government -- already billions of dollars in debt -- will now be giving money away to low-income homeowners buying low-priced properties. Whose values will now spike thanks to the so-called free money, free if you're receiving it.
Of course, if you're middle class or up, you get to pay for this, and sustain your own storm damage and the future risks of further damage. Furthermore, your properties are probably too expensive to benefit at all from this artificial price stimulus at the bottom of the market.
Since the income restriction will put a de facto cap on the value of purchasable properties, it virtually ensures only low-priced properties will be purchased with this assistance.
This program is being funded in the name of helping storm victims. Its real impact will be to inflate home prices at the low-end of the market so that low-income homebuyers who do not get the subsidy will be priced out of even the lowest priced homes and condos. Without a subsidy, the lower and working class home buyer will be priced out of the market. More brilliance. But this is what passes for "fair" these days.