As federal and state governments continue to seek responses to the Coronavirus (COVID-19) pandemic, the federal government announced relief measures for mortgage delinquencies and a moratorium on foreclosure activities for certain mortgages. With the implementation in New Jersey of Executive Order 107, the expected loss of jobs and income is likely to significantly impact on mortgage defaults as homeowners struggle to maintain their expenses.
New Jersey Foreclosure Rates
Since the impact of the 2008 recession began to fade, mortgage foreclosure rates in New Jersey have generally been falling. Under the Mortgage Stabilization and Relief Act enacted January 9, 2009, all creditors that institute a mortgage foreclosure proceeding in the Superior Court of New Jersey must report on a quarterly basis to the New Jersey Department of Banking and Insurance (DOBI).
Creditors must report the number of foreclosures instituted and other information on mortgages being foreclosed. The New Jersey Department of Banking and Insurance post the reported information on its website.
The information is on the number of foreclosure complaints filed in New Jersey Courts. Keep in mind this is different than falling delinquent on your payments, a defaulted mortgage, or receiving a Notice of Intent to Foreclose.
With the expected economic impact of COVID-19, it is certain that there will be a significant increase in New Jersey homeowners who are unable to make mortgage payments on time. While state and federal governments are seeking to provide relief, we should be aware that even the most effective relief will not protect all from financial distress.
On March 19, 2020, the Federal Housing Agency (FHA) ordered that mortgage companies and banks offer homeowners affected by the pandemic flexibility. Through Fannie Mae and Freddie Mac, the FHA requires banks to offer reduced or delayed payments for homeowners who have suffered a loss of income. Under the program, homeowners may be able to reduce or stop making payments for up to 12 months if they qualify.
Fannie and Freddie have also told creditors to stop foreclosures. Keep in mind, this likely includes mortgage foreclosures which started before the impact of the pandemic. The stay of foreclosures serves an obvious public health and safety goal especially in New Jersey where there are significant restrictions on everyday life.
LIMITATIONS OF CORONAVIRUS FORECLOSURE MORATORIUM
While the FHA’s announcement is certainly a good start on limiting the financial impact of the COVID-19 crisis, there are many limitations which suggest further action will be required. More likely needs to be done to avoid Coronavirus foreclosures now and well into the future.
Fannie Mae and Freddie Mac guarantee, through the FHA, about 50% of all mortgage loans in the United States. This leaves half of mortgages controlled by private lenders. While private lenders, such as Chase Bank, suggest that they may be offering similar relief, federal and state legal action has typically been required to protect homeowners facing foreclosure.
Second, the proposal for mortgage forbearance is not a forgiveness of the debt. A deferral or forbearance means that the unpaid amounts will still remain due at a time in the future. Though the details are unclear, it would seem that homeowners seeking relief may need to address this on a month-to-month basis.
Further, temporarily stopping foreclosures will only push the problem to a later date. Homeowners may lose income for a significant period of time or have long-term impact on their income and finances. In addition, lost jobs or income could impact health insurance and medical debt could be incurred. Historically, lost income and medical debt have been amongst the leading causes of foreclosure and bankruptcy.
As New Jersey faces one of the most significant effects of the Coronavirus (COVID-19) pandemic, the first concern is obviously the protection of the health and safety of all involved. Business like ours are making every effort to ensure we are doing our part in managing the unprecedented crisis.
The economic impact of the COVID-19 pandemic is starting to be felt by homeowners and consumers. The hope is that federal and state governments can learn from prior financial crises and deliver solutions to avoid foreclosure, debt and other consequences.
We know from our experience in representing New Jersey homeowners and families for over four decades that we can help find solutions to even the most seemingly insurmountable financial distress.
Please keep safe during these most difficult of times.