Op-Ed: Reckless Hijacking of the NJ Housing Trust Fund

Dan Hoffmann

Gov. Phil Murphy’s proposed new budget has rekindled controversy over the practice of diverting revenues from the State Housing Trust Fund for purposes other than affordable housing – something that previous governors of the two parties had done, but he vowed not to do. The proposal would embezzle up to $ 47 million.

The administration defended the action, noting that unlike past embezzlement, reprogrammed funds will continue to support housing activities. However, advocates for low-income groups responded that the HTF was created to meet the needs of low- and moderate-income households and that the proposed diversion would primarily benefit those with higher incomes. The proposed use of $ 22 million for a down payment assistance program benefits those with incomes 80 to 140% of the median income in the region is particularly angry.

Less discussed, but perhaps more important in the long run, is the down payment program as proposed:

  • Fails to promote (and may well defeat) other purported objectives of the administration;
  • Is unnecessary because the state can provide this type of assistance without using the FASS revenues;
  • Not very useful as an affordable housing strategy, even for those who receive this grant.

In conflict with other administrative objectives

Presumably, this down payment assistance program, like the previous down payment assistance efforts of the New Jersey Housing and Mortgage Finance Agency, will lack targeting beyond basic income guidelines. . As such, this program will fail as a housing, community, economic development and environmental protection activity. For example:

  • Is funded housing an engine of growth or smart sprawl, or gentrification and displacement? By having no location requirements, none of these outcomes is possible, most of them being undesirable and defeating other administrative purposes.
  • Are communities that have not made progress in meeting their equitable affordable housing obligations benefiting from it? The HTF was created to facilitate affordable housing opportunities. Access to funding in communities that continue to shirk their affordable housing responsibilities is unreasonable.
  • Does the funding promote substantial economic growth by supporting construction and rehabilitation or will the effort be largely used to buy a house on a street? The real estate sector does not need additional subsidies, but a focused effort on rehabilitation and even new construction could support small businesses and new vocational training efforts, both state goals.
  • If new construction or rehabilitation is funded, will it support the state’s “green” agenda? The state is preparing to spend huge sums on green energy, energy conservation and climate change preparedness. The state may require that this effort support these and related goals.
  • Does the program support other economic initiatives? For much of the past year, stories about teachers and health heroes and the low wages many earn in these industries have abounded. Why not make serving these workers a priority while helping to stabilize the communities in which they work (and where they might live, thereby reducing public and private transport costs and improving worker reliability)? Poor school districts that have difficulty recruiting and retaining teachers could use this tool to overcome these difficulties. Failure to use funds in this way misses a free chance to help struggling school districts and communities. Likewise, this program could be used to help attract and retain employees for other industries where the state already has or is about to make substantial investments. For example, is the South Jersey housing market ready to serve and affordable for those who will be working in the wind energy industry? Are workers with new jobs in Camden able to find suitable housing? Are high-tech employers in the New Brunswick-Princeton corridor able to attract young, skilled, college-indebted talent who are largely uprooted after college graduation and able to leave the state? ?

Using HTF dollars is unnecessary

It is unclear what problem this program is supposed to solve: the lack of sufficient down payment savings among potential buyers or the need to reduce the amount borrowed to reduce the borrower’s monthly postage costs. In either case, the New Jersey Housing and Mortgage Finance Agency has historical experiences and powers to address either of these concerns without using HTF dollars. Some examples:

The agency could provide 100% financing, eliminating the need for a down payment. Likewise, HMFA could guarantee the portion of a mortgage loan not insured by the Federal Housing Administration or a conventional lender. Either approach would allow borrowers to get 100% financing or something similar. At the time the HMFA and Housing Trust Fund laws were enacted, there was discussion, but no action, regarding the creation of a state mortgage insurance entity to underwrite non-conforming (non-standard) mortgages. ) as other states had done. Interestingly, the governor’s diversion program includes the use of $ 10 million for a new multi-family mortgage insurance product. It would appear that the time has come to revisit the idea of ​​creating a heavily charged insurance entity for non-compliant housing and economic development loans.

Lease-to-own financing could meet a buyer’s need for a larger down payment to manage the monthly costs of homeownership. This type of financing is specifically authorized in the HMFA law. Equity financing would allow the buyer to immediately own a portion of the home and use the appreciation of the home over a period of several years to build up equity allowing the home to be refinanced in a conventional manner. HMFA could create a sub-company with a portfolio of shared equity loans, as could a New Jersey public bank, the creation of which is currently under discussion. A less good approach might be to make HTF financing a deferred rather than a repayable loan, with repayment after five or ten years through buyer’s savings or required refinancing that takes advantage of the home’s appreciation allowing for refinance the home safely.

As a strategy to reduce monthly costs, lease-purchase and equity financing would generally offer more help than reducing the amount borrowed by $ 10,000. On a $ 300,000 home (if that can be found), the $ 10,000 not borrowed would translate into an annual savings of about $ 550, depending on the interest rate with a 30-year mortgage. Years ago, when rates were much higher, interest rate “buybacks” were a common funding practice, where fees were paid at closing to reduce the interest rate. Assuming a base mortgage interest rate of 3.5% on that $ 300,000 house, for $ 9,000 we could buy back the interest rate of over $ 1,200 per year, more than double the rate. program benefits offered at only 90% of the cost.

HMFA could also seek to create a new generation of employer-sponsored housing partnerships. HMFA was among the first housing agencies in the state to participate in employer-assisted housing programs. He could do it again. Large institutional and public employers could provide down payment guarantees on mortgages granted by the HMFA (as was done in the past), or the state could seek to leverage and offset its cash costs by putting in place a matching grant program with employers. This would be particularly useful if the program were linked to the state’s economic development efforts, and it is an approach that many employers have consistently supported.

New Jersey’s Biggest Problem

The proposed diversion has been criticized as breaking a commitment to the state’s most vulnerable residents in housing. Whatever the merits of the policy, it is also clear that the proposed implementation is flawed in its unnecessary reliance on Housing Trust Fund money and in its inability to use sidetrack or alternative funding. so as to support other so-called housing, community and economic development. environmental goals and efforts. In considering this proposal, the legislator should carefully consider these issues.

As a foreigner, in general, it does not appear that the administration’s main objective has been to make it harder for the poor to find adequate housing, a change from previous administrations in recent decades. If this is true, then the conclusion may be that after 30 years of governors battling affordable housing efforts, the state’s housing bureaucracies no longer know their own histories and abilities and are unable to make thoughtful decisions and innovative approaches to affordable housing programs. Moreover, the political silos in which decisions about housing, economic development, and other decisions are made may be so frozen and unaccustomed to considering how better housing policy can advance other interests than they do. are unable to work together to create new, innovative and inclusive policies and programs. If so, New Jersey seems to have a bigger problem than how to best spend $ 47 million. Rather, New Jersey must figure out how to create modern and reinvigorated institutions that can innovatively and effectively tackle the persistent problem of inadequate, inappropriate and unaffordable housing.


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