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Thursday, February 20, 2014

Another Foreclosure Relief Disaster

The foreclosure-relief crowd is taking advantage of New Jersey Governor Chris Christie's (potentially fatal to his career) weakness due to Bridgegate to try to ram through a new iteration of the Residential Foreclosure Transformation Act that was passed by that state's Legislature but then vetoed by Christie in 2012. (A revised version was also passed and subsequently vetoed.)

The new act is another disaster.  First of all, the text has apparently not even been revised from the 2012 bills' text; Section 2.c. still refers to anticipated 2012 foreclosures.  Secondly, it retains the 30-year deed-restriction on the foreclosed properties so that they are permanently (that is, for at least the 30-year period) turned into very-low-income, low or moderate-income housing or special needs facilities.  Thirdly, the bill would only allow foreclosure purchases under the act in significantly impacted towns, so small towns with fewer than 10 foreclosures would not be "helped" despite the fact they might be afflicted in small but concentrated areas just as severely as larger municipalities.  (In essence, the smallest municipalities in the state would not be subject to the Act.)   Finally, as economic reality dictates that foreclosure-available relief funds be used to maximize the number of purchased properties so as to maximize the number of people to whom housing could be provided (this would make sense, no?) the relief under this Act will likely be concentrated in the towns with the lowest purchase prices.

I see all sorts of equal protection (Fifth and Fourteenth Amendment) issues and the specter of de facto discrimination in the effect of the bill, if it ever gets signed into law. The risk now is political; to save his political skin Chris Christie just might sign an abomination of this bill.  The people most likely to be hurt by this bill will be minorities and the poor

I've argued before that these "foreclosure relief" bills will not put a floor under depressed home prices in affected areas to stop them from falling; instead, they will put a ceiling (and a 30-year ceiling) over current depressed prices to prevent them from rising.  If you're a homeowner affected by an abandoned property, which is worse for your home's value?  I don't argue that foreclosures, abandoned or neglected homes are not a major detriment to home values, but an open-market purchase or even a tear-down allow for recovery of home prices.  Putting a housing project next door to your home, however, is almost guaranteed to crash the value of your house and then keep it stuck there.

I have written extensively about the 2012 bills' problems and those articles (including this one) are just as relevant here.

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