Menendez Introduces Bill to Keep People in their Homes

Menendez Introduces Bill to Keep People in their Homes

WASHINGTON, DC - U.S. Senator Robert Menendez (D-NJ), Chairman of the Senate Subcommittee on Housing, Transportation and Community Development today introduced the Preserving American Homeownership Act to help families stay in their homes despite their mortgage being worth more than their home. According to CoreLogic, New Jersey has the highest rate in the nation of homes currently in foreclosure. The bill is co-sponsored by Senators Elizabeth Warren (D-MA) and Jack Reed (D-RI)

"Far too many New Jerseyans are underwater on their mortgages and are all too familiar with the burden this brings." Senator Menendez said. "My bill aims to give homeowners the break they need by working with banks to find acceptable solutions for everyone. Not only can we help families stay in their homes, we can mitigate the impact foreclosures have on our communities and our economy."

The Preserving American Homeownership Act is specifically aimed at homeowners who owe more than their house is worth ("underwater"), which is currently estimated to be about 8.7 million homes and 17% of all homeowners, according to Zillow. On average, these homeowners owe approximately $72,000 more than their home is currently worth, or nearly 40 percent more than the home's value.

Even with home prices rebounding since the financial crisis, millions of homeowners are still underwater on their mortgages because of the broad national decline in home values that has occurred since 2006, which can be seen here. Because of this, homeowners may be at risk of foreclosure, unable to sell their home and move, or forced to walk away at great cost, further hurting the still-fragile market, and banks are reluctant to reduce the amount owed to them ("principal") because they are concerned about losing income.

The legislation seeks to help both parties - homeowners and lenders - by creating a program in which banks reduce the mortgage principal for eligible homeowners. In exchange, banks would be entitled to a portion of any increase in the value of the home down the road. The program is a win-win for everyone: underwater homeowners receive relief on their mortgages, while banks agree to take a short-term reduction for a long-term gain as the housing market recovers. In a similar program tested by a private mortgage servicer, almost 80% of homeowners who were offered the opportunity to participate chose to do so and had a re-default rate of only 2.6%.

Additional Details

Click here to download the full text of the bill.

  • The principal balance of the loan would be reduced to 100% or less of the re-assessed value of the home, provided the homeowner is able to make reduced payments; the principal balance would be reduced in 1/3 increments per year.
  • In exchange, the bank would receive a fixed share (of up to 50%) of the increase in the home's value when the home is sold or later refinanced, up to a maximum of twice the amount of principal reduced. The share depends on factors to be determined by the Federal Housing Finance Agency (FHFA) and Federal Housing Agency (FHA), including how much the bank initially reduced the principal.
  • Home values would be determined by independent third-party appraisers.
  • Two pilot programs would be established by the FHFA and FHA.
  • Homeowners are eligible no matter how far underwater they are.
  • Homeowners who are in default or foreclosure are eligible, but they must make timely payments on the modified mortgage going forward or they will not receive any principal reduction.
  • Both primary and secondary residences are eligible.