BRIDGETON, NJ – U.S. Sen. Cory Booker (D-NJ) today announced Cumberland County’s inclusion in a federal program designed to help families with troubled, federally backed mortgages stay in their homes. As many as 600 families in Cumberland, which was hit hard by Superstorm Sandy, may be eligible to participate in the program. Booker was joined at the announcement by Freeholder Director Joe Derella, Bridgeton Mayor Albert Kelly, Assemblywoman Celeste Riley and Cumberland County Economic Development Director James Watson.
The Department of Housing and Urban Development’s (HUD) Distressed Asset Stabilization Program, which is administered by the Federal Housing Administration (FHA), helps homeowners who are at least six months delinquent on their federally backed mortgages, have exhausted all the steps in the FHA-approved loss mitigation procedure, have never declared bankruptcy and are on the brink of losing their homes in the immediate future. The Distressed Asset program has already been opened up to the nine New Jersey counties designated as the main recipients of federal Sandy aid – a group Cumberland was not part of – and roughly 600 families in those counties were also determined to be eligible to participate in it.
Booker first visited Cumberland County in December to survey Superstorm Sandy damage and meet with area residents. After his visit, he pledged to explore ways to help speed recovery in Cumberland communities and reached out to HUD.
“There are families in Cumberland County who weathered both the recession and Superstorm Sandy, and who may have thought that they just couldn’t hold on to their piece of the American Dream,” Booker said. “Those families now have more hope. And Cumberland communities will grow stronger and more stable if more families are able to stay in their homes.”
The Distressed Asset program was designed to help deal with the glut of homeowners facing foreclosure in the wake of the financial crisis and the economic downturn. It has been employed in hard-hit communities across the country, including Newark, Atlanta and Detroit.
The program bundles distressed, federally backed mortgages that are then sold at auction, and because they’re past due, they’re considered more risky than typical home loan tranches, so they go for a price below the outstanding principal balances - the amount the homeowner still needs to pay.
In practical terms, let’s say a family is facing foreclosure and owes $200,000 on their mortgage and qualifies for the Distressed Asset program. A participating investor buys their mortgage note for a lesser amount – maybe $150,000. The new loan servicer can then work with the homeowners to modify their loan so that they owe $175,000, for example, and to give them a more lenient repayment schedule.
The investor is then able to turn a profit and the family is able to stay in its home, helping to strengthen and stabilize the housing market for the whole community.
In the ensuing months, investors will indicate that they want to participate in the auction of the distressed mortgages, and the sale is slated to occur in June.
The purchasers of the pool of loans will be required to work to avoid foreclosure and achieve positive outcomes for these properties. The program also puts a cap on how many homes can be foreclosed upon – a costly option that banks want to avoid anyway – but if foreclosure can’t be avoided, the servicer still has to achieve an outcome that is stabilizing, such as holding the home for an extended period as a rental property.
The letter Senator Booker sent to HUD Secretary Donovan advocating for Cumberland County homeowners can be viewed here.